What Does The Winter Economy Plan Mean For Your Business?
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- October 2, 2020
Following an ongoing rise in COVID-19 cases across the UK, the Chancellor of the Exchequer has launched the Government’s ‘Winter Economy Plan’. The aim behind this new scheme is to support workers and businesses through Autumn and Winter, a time some were concerned would become even harder as we move into regular local lockdowns.
Nik Hynes is a founding partner at Tree Accountancy and a qualified accountant. Here he discusses the main points of the Plan and how it could help support your business for the rest of the year.
Job Support Scheme
To replace furlough, which ends on 31st October, the Job Support Scheme (JSS) will begin on 1st November. It will run for 6 months and workers placed on the scheme will be protected from redundancy throughout its duration.
All SMEs are immediately eligible whilst larger businesses will have to prove that their turnover has fallen.
Employees on the scheme must work at least 33% of their contracted hours. For example, the average employee works 37.5 hours a week, so will need to work a minimum of 12.5 hours when on the JSS.
For hours not worked, the government and employer will each pay 33% of the ‘lost’ salary. For the government this will be capped at £697.92 per month.
This can all seem far more complicated than the furlough scheme however, so let’s apply some real numbers.
Let’s assume a business employs someone on a standard Monday-Friday contract of 37.5 hours per week. Let’s also assume the employee is paid £20,000 per year and they only return to work for the minimum required number of hours the scheme demands, which in this case would be 12.5 hours per week (33% of 37.5).
Firstly the employer pays their full salary for the 12.5 hours worked.
The government would then pay a further 33% of the unworked 25 hours, accounting for 8.3 hours.
The employer would also pay 33% of the unworked 25 hours accounting for another 8.3 hours.
The employee would receive 77% of their weekly salary in this example (about £298) of which the employer would have paid £213.
Employers will then be reimbursed in arrears for the government contribution. Also, you’ll still be able to claim your job retention bonus.
Self-assessment
Many who are registered for self-assessment deferred their payments back in July. These individuals will now get more time to pay with the added benefit of opting for monthly instalments rather than a lump sum.
For example, if you had £30,000 of self-assessment liabilities due in July 2020, you can now secure a plan with HMRC’s online Time to Pay facility that sees regular repayments stretching all the way to January 2022. It is important to note, however, that HMRC will need to have received the full amount by January 2022 so planning accordingly is still important.
HMRC are also offering support for self-assessment taxpayers who are unable to pay their tax bill on time but owe more than £30,000. This will require discussion with your accountant and HMRC however discuss your circumstances and agree a route forward.
Loan arrangements
The application deadline date on the existing business CBIL is now 30th November. At Tree Accountancy we’ve seen the most interest in the Coronavirus Business Interruption Loan (CBIL) and Bounce Back Loan Scheme (BBLS).
Changes to the BBLS has seen the introduction of a new “Pay as you Grow” option. This will allow new and existing borrowers to extend their loans from 6 to 10 years.
CBILs have also been updated so lenders can extend the term of the loan to up to 10 years as well.
The Self Employment Income Support Scheme (SEISS)
This is being extended to April 2021 but there have been revisions. To be eligible, the following criteria must be met:
- Self employed
- Currently eligible for the existing scheme
- Still trading
- Facing a reduced demand for their services as a result of the pandemic.
It is also important to note the SEISS is still not available to directors who trade as limited companies.
VAT Reduction on Leisure, Hospitality & Tourism Extended
The VAT reduction from 20% to 5% for the hospitality and tourism sectors has been extended until the end of March 2021. This includes restaurant food and non-alcoholic drinks, hotel and holiday accommodation, and attraction admissions.
Whilst the government has said this saving can be passed onto customers, it is up to the business to decide if they will do so. Many larger chains have made public announcements they will pass these savings on to the customer but for smaller companies this could be difficult path to follow as they weigh up recouping lost revenue vs. a possible backlash from the public.
Is this Good for my Business?
Cashflow was the major concern for many businesses at the start of lockdown and the various government schemes went a long way to reducing these fears or preventing companies closing altogether.
6 months on and many businesses have adapted to the new ways of working by implementing new technologies, business strategies and safety measures. Some industries have even flourished in this new environment.
This is not the case for all industries however. Travel & Hospitality continues to be hit hard as does High Street Retail. Even small businesses in sectors that are doing well might have struggled as they don’t have the manpower or financial reserves to adopt all the changes they need as quickly as their larger competitors.
For these businesses the new Winter Economy Plan will help them continue to trade and adapt to a changing environment. It’s also worth pointing out the economy is a complicated and intertwined animal. No sector stands on its own and everyone will feel the impact of mass unemployment and crippled industries.
Whatever the next six months bring, Tree Accountancy will help you continue to look for opportunities to optimise your cash flow, your profits, and to gain the maximum benefit from your business.