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The Chancellor’s Winter Economy Plan 2020

Having announced there would be no Autumn Budget this year, the Chancellor instead unveiled his Winter Economy Plan. The aim here being to steer the economy through what he described as a “difficult winter” - following the hard decision to end the furlough scheme.  

 

24 September 2020

This latest 'Economic Update’ by the Chancellor arrived six months and a day after the Prime Minister announced the start of lockdown on 23 March. Twelve days earlier Rishi Sunak had made his Budget debut, announcing a “temporary, timely and targeted” package of measures to “deal with the coronavirus”.

Their estimated total cost at the time was £12 billion. That figure now looks like small change in terms of the cost of the pandemic so far. 

With Covid cases dramatically on the rise and many industry sectors struggling, pressure was once again on the Chancellor to keep the economy on track.  Here is an overview of the measures which were announced.

After announcing there would be no Autumn Budget this year, Rishi Sunak outlined instead the Government's Winter Economy Plan – which is deemed to be the main focus for HM Treasury over the coming 6 months and intended to protect the fragile Economy. In his statement, The Chancellor announced the next stage of help and support for jobs and businesses. The aim is to steer the economy through what he described as a “difficult winter” after the hard decision to end the furlough scheme.

 

Key highlights of the measures introduced:

 

The cost of the pandemic is set to rise

The week also saw the publication of HMRC statistics on the response to Covid-19. They reveal that to 20 September 2020:

These figures tell only part of the story. There is also the cost of one year’s business rates relief, grant funding and enhancements to social security benefits. The latest (August) central scenario projection from the Office for Budget Responsibility is for government borrowing to reach £372.2 billion in 2020/21 against the £54.8 billion estimate it made at the time of the Spring Budget.

The latest statement from the Chancellor will increase this year’s borrowing further. However, the consensus among economists is that for now, life support for UK plc trumps any consideration of public debt levels. Today Mr Sunak has divided that support into three main areas:

  1. Employment
  2. Loan arrangements
  3. Taxation

 

Employment measures

Job Support Scheme

The Chancellor made clear that the Coronavirus Job Retention Scheme will end on 31 October 2020, as planned. Its replacement will be the Job Support Scheme (JSS), which will run for six months from 1 November. Under the terms of the scheme:

 

Self-Employment Income Support Scheme (SEISS)

The SEISS will be extended in a new form for six months from 1 November 2020. The scheme’s new terms are:

The new SEISS grant will only be available to self-employed individuals currently eligible for the existing scheme who are actively continuing to trade but are facing reduced demand due to Covid-19.

The extension will be in the form of two taxable grants:

  1. The first grant will cover a three-month period from the start of November until the end of January. This initial grant will cover 20% of average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £1,875 in total.
  2. The second grant will cover the following three-month period starting in February. The government will review the level of the second grant and set this in due course.

 

Loan Arrangements

The closing application date for the four main Government-backed loan schemes will be extended to 30 November 2020.

Bounce Back Loan Scheme (BBLS)

The BBLS provides loans of between £2,000 and £50,000, capped at 25% of turnover, with a 100% government guarantee. Under the original BBLS, the borrower did not have to make any repayments for the first 12 months, with the government covering the first 12 months’ interest payments. The maximum loan repayment term was six years.

Under new ‘Pay as You Grow’ options for BBLS:

 

Coronavirus Business Interruption Loan Scheme (CBILS)

CBILS lenders will be allowed to extend the term of a loan up to ten years, while retaining the benefit of the 80% government guarantee.

 

Coronavirus Large Business Interruption Loan Scheme (CLBILS)

The Coronavirus Large Business Interruption Loan Scheme (CLBILS) will continue in its current form until the end of November.

 

Future Fund

The operation of the Future Fund, which provides matching convertible loans to innovative businesses will continue in its current form until the end of November.

 

Covid-19 Corporate Financing Facility

The Covid-19 Corporate Financing Facility, targeted at large businesses and operated by the Bank of England, will remain open until 22 March 2021. Where a company has exhausted all other options, and is of strategic importance to the UK, the government may also consider providing bespoke financial support.

 

Taxation measures

Temporary VAT cut for hospitality and tourism

The reduced (5%) rate of VAT will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises, and to supplies of accommodation and admission to attractions across the UK until 31 March 2021 rather than ending on 12 January 2021.

 

VAT deferral

A ‘New Payment Scheme’ for VAT deferral will offer businesses that deferred VAT due in March to June 2020 the option to spread their payments over the financial year 2021/22 in 11 equal instalments. All businesses that took advantage of the VAT deferral are eligible and can use the scheme. However, they will need to opt in using a process HMRC will launch in “early 2021”.

 

Self-Assessment Tax Deferral – Enhanced Time to Pay

The self-employed and other taxpayers will be given more time to pay taxes due in January 2021, building on the self-assessment deferral provided for payments on account in July 2020.

Taxpayers with up to £30,000 of self-assessment liabilities due will be able to use HMRC’s self-service Time to Pay facility to secure a plan to pay over an additional 12 months. This means that self-assessment liabilities originally due in July 2020 will not need to be paid in full until January 2022. Any self-assessment taxpayer not able to pay their tax bill on time, including those who cannot use the online service, can continue to use HMRC’s Time to Pay Self-Assessment helpline to agree a payment plan.

 

Summary

The main focus of the measures announced are clearly designed to safeguard as many jobs as possible and provide additional help and support to businesses as they navigate the next few months. The new Job Support Scheme and amended Self-Employment Income Support Scheme will help underpin employment and income. The extended and additional business loan provisions and measures to ease VAT and self-assessment payments are all important tools for what is expected to be a hard winter.

As always, the devil is in the detail. As the Treasury begins to release the papers behind the Chancellor’s headlines, the Shipleys team will be closely monitoring what these mean for our clients.  We’ll be sharing our conclusions and advice here on our website and in our conversations with clients.

In the meantime, if you wish to discuss how the Winter Economy Plan will impact on you, please do talk with your usual Shipleys’ contact or one of our offices.  

 

This summary is based on the Chancellor’s Winter Economy Plan Statement on 24 September 2020, supplemented by information from official publications. It reflects our understanding of proposed changes to tax law and practice at the date of publication, but is not a complete and definitive guide. The Government's proposals may be amended.

Specific advice should therefore be obtained before taking action, or refraining from taking action, on the basis of this information.

© 2020 Shipleys LLP

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