Winter Economic Plan

On 24 September 2020, Chancellor Sunak announced various support measures in his winter economy plan. The Autumn Budget has been scrapped this year, as the treasury suggested “now is not the right time to outline long term plans”.

We have prepared a summary of all what you need to know from today’s latest announcements. 

1. Job Support Scheme

2. Pay as you grow (loan scheme)

3. VAT cut

4. VAT deferral

5. Income Tax deferral

6. Self-employed grant extension

1. Job Support Scheme

• Furlough Scheme: Ends on 31^st October 2020
• Job Support Scheme: Begins on 1^st November 2020
• Duration: 6 months
• Eligibility: 33% of normal hours
• Support: One third of lost pay by employer and government each
• Redundancy: Not allowed while on scheme
• Capital distribution to shareholders: Restricted
• Job Retention Bonus: Available

The Furlough scheme, due to expire in October, will be replaced by less generous scheme “Job Support Scheme” to protect “viable jobs” from November 2020 for 6 months.  

Employees need to work for at least 33% of their normal working hours to be eligible. The employer and the government will then contribute one-third each for the “remaining hours” (lost wage). Consequently, employees working 33% of their hours will receive 77% of their wages. This will constitute 33% normal wages from employer, 22% (one third of 67% hours not worked) and 22% contribution from government.    

Businesses/Employers will not be able to issue redundancy notices to those workers who are on Job Support Scheme throughout its duration. Capital distributions to shareholders will also be restricted. 

Job Retention Bonus, announced earlier, will also be available to businesses benefiting from Job Support Scheme, provided they meet relevant criteria.

This will effectively drop the Government’s maximum contribution of 80% under Furlough scheme to 22% under the Job Support Scheme.

Example: If a worker’s monthly wage is £2,000 and the worker is working half their normal hours, they would get £1,000 normal pay plus £333 additional from employer (One third of hours not worked) and £333 from government. 

2. Pay as you grow (loan scheme)

 A “pay as you grow” scheme, as chancellor puts it, is for businesses which took government guaranteed loans during the pandemic. They can now extend the repayment term from 6 to 10 years, nearly halving their average monthly repayment.

If you are genuinely struggling with cashflows, you could move to “interest only” payment system or even suspend payments altogether for up to 6 months. You can do so without effecting your credit rating.

Chancellor also suggested a new loan scheme will also be announced in January 2021.   

3. VAT cut

 On 15^th July, chancellor reduced the VAT rate from 20% to 5% for the worst affected sectors, hospitality and tourism, until 12^th January 2021. The chancellor has now cancelled the planned increase back to 20% in January 2021. This means restaurants, hotels and attractions will keep charging 5% VAT until 31 March 2021.

4. VAT deferral

 Around half a million businesses, who deferred their VAT payments during 20 March 2020 and 30 June 2020, were supposed to pay the deferred VAT by 31^st March 2021. Such businesses will no longer be required to pay a lump sum at the end of March 2021. They will have the option of splitting it into smaller, interest free payments over the course of 11 months. 

5. Income tax deferral

Self-assessed income taxpayers can extend their tax debt over 12 months to January 2022, provided their personal income tax debt is up to £30,000.

To benefit from this, they would need to call HMRC to set up a payment plan. This will certainly assist self employed or taxpayers with multiple sources of income with their immediate financial problems, but they will need to pay the tax eventually. 

6. Self Employed grant extension

The chancellor announced an extension of the self-employed grant on similar terms and conditions as the new Job Support Scheme. The extension in full will last until the end of April 2021, covering 20% of average monthly trading profits via a government grant.

He says 2.6 million self-employed small businesses have been helped during the pandemic so far.