Winter Economy Plan summary – Government support for businesses

The government has today announced a new package of measures to support businesses through to March 2021 following the introduction of further restrictions and rising COVID-19 infection rates.

The measures, whilst not as generous as those introduced earlier this year, will be welcomed by businesses facing an uncertain winter. But, the devil will be in the detail.

The measures announced today include:

Job Support Scheme

The furlough scheme will end on 31 October and will be replaced with financial support for businesses with staff working reduced hours. The Job Support Scheme will:

• Be available for businesses with staff working at least one-third of their normal hours.
• The government will then top up salaries by one-third of the remaining two thirds, with another third due by the employer. This results in an employee working 1/3 of their normal hours receiving 77% of their normal wage, with 22% funded by the government and 55% by the employer. The scheme is open to all SMEs and to larger businesses who can show a fall in turnover.
• The scheme will start on 1 November 2020 and operate for six months.

From 1 November, for the next six months, the Job Support Scheme will protect viable jobs in businesses who are facing lower demand over the winter months due to COVID-19. pic.twitter.com/8NpIKpQV8y

— HM Treasury (@hmtreasury) September 24, 2020

Laurence Parry Tax Partner, said: “The question that companies must answer is whether they are prepared to pay a premium for an employee to work reduced hours in order to avoid the cost of making more long-term structural redundancies. The scheme will only be of benefit to employers where there is a genuine expectation that the roles will be required from May 2021.”

Pay as you grow

The government has to date made available some £38bn in bounce back loans to SMEs with repayment terms of up to six years with an interest rate of just 2.5%. Now, repayment terms of those loans can be extended to up to 10 years, effectively halving monthly repayments. Businesses facing particularly acute cash flow challenges can opt to repay just the interest or defer repayment altogether for up to six months.

Businesses that have taken advantage of CBILs will now, thanks to an extended government guarantee, also have up to 10 years to repay borrowing.

Bounce back loans and CBILs applications will now remain open until the end of the year, and will be replaced with a new ‘successor loan scheme’ from January 2021. Details of the successor loan scheme have yet to be published and will be keenly awaited.

1/More than one million businesses which have borrowed under the Bounce Back Loan Scheme will be offered the choice of more time and greater flexibility for their repayments pic.twitter.com/NsXu9Z2yZf

— HM Treasury (@hmtreasury) September 24, 2020

John Walsham, Business Development Consultant, said: “A welcome extension to the Government-backed loan schemes which have aided the cash flow of many businesses on very attractive terms. Those businesses who have already received a smaller bounce back loan may wish to consider converting that into a larger CBILS facility, whilst the scheme still remains open to build the necessary capital buffer required. Times are still very uncertain and many businesses will currently be considering the effect on their cash flow if further lockdowns are instigated.”

Deferred tax bills

Half a million businesses have to date deferred £30bn of VAT payments until March 2021. The Chancellor has announced that payments can be spread over 11 smaller instalments with no interest penalties. Self-assessment income taxpayers have also been given the opportunity to spread payments over a 12-month window from January 2021.

1/ Businesses who deferred their VAT will no longer have to pay a lump sum at the end of March next year. They will have the option of splitting it into smaller, interest free payments over the course of 11 months – benefitting up to half a million businesses pic.twitter.com/qPKaVa6iqn

— HM Treasury (@hmtreasury) September 24, 2020

Hospitality and tourism

The hospitality and tourism sectors are amongst the most affected and are likely to remain so for many months to come. The extension of the 5% VAT rate through to 31 March 2021 will be welcomed.

To continue supporting over 150,000 businesses and protect 2.4 million jobs, the Government has extended the 15% VAT cut for the tourism and hospitality sectors to the end of March next year. pic.twitter.com/5s5UMyqZSD

— HM Treasury (@hmtreasury) September 24, 2020