On Thursday 24 September the Chancellor announced a raft of new measures to help support businesses in the coming months, as the economic impact of the Coronavirus looks set to continue for the foreseeable future.
With the recent restrictions on social activity and early closing in the hospitality sector for the next six months, the Chancellor is hoping that the second wave of COVID-19 will subside sufficiently for the economy to start to recover better in the Spring of next year.
The new support measures are more targeted than the previous ‘blanket’ approach adopted at the beginning of the pandemic. It has become clear that the virus will be with us for some time and these new measures are an attempt to provide a more sustainable version of financial support. Below we explain the main features of the new job support scheme (JSS) and give an overview of the other support for business announced.
Job Support Scheme
The main announcement from the Chancellor relates to the JSS, the Government’s replacement for the Coronavirus Job Retention Scheme (CJRS) which will end on the 31 October 2020. The JSS (modelled on a version used by the German government) is much narrower than the CJRS and the support will be targeted at jobs which are deemed to still be ‘viable’.
The Government says that in these unprecedented times it will not be possible to save every job or business, and as a result the CJRS in its current format was unsustainable.
Whether a job is viable is down to the employer’s judgment as to what is affordable and provides value to the business. Is the job still needed? Does the work need to be done at all? Is there a full time requirement for the work to be done?
How long will the scheme run for?
The scheme will begin on 1 November and will last for 6 months until 30 April 2021.
Who will be eligible for the scheme?
One of the big differences in the JSS from the CJRS is who is eligible for to benefit from it. The new scheme will be open to all small and medium sized businesses with a UK bank account and UK PAYE scheme.
Large businesses will have to meet a financial assessment test, proving that they have been adversely affected by the pandemic. Details are yet to be provided, but it is expected that they must show that their turnover has fallen by at least 33% as a result of the Coronavirus.
Businesses do not have to have participated in the CJRS to be eligible. So this means that it is not aimed solely at those returning from furlough. It can apply to any employee who the employer needs to reduce their hours down to no less than 33% of their usual hours, including those coming back from furlough.
How will it work?
The scheme shares similarities with the latter stages of ‘flexible furlough’ offered by the CJRS, in that it will be funded by contributions from both the employer and the Government.
However the new scheme differs in that it will require the employee to be working at least 33% of their normal hours and be remunerated by their employer for those hours as normal. After the first three months of the scheme, the Government may reassess the minimum hours threshold.
The scheme is only available for employees who were on the employer’s Real Time Information submission on or before 23 September 2020. Employees will be able to cycle on and off the scheme, and do not have to work the same pattern each month. However each short-time working arrangement must cover a minimum period of seven days.
The Government will pay one-third of every hour not worked, subject to a cap of £697.92 per month, with the employer paying a further third. This means that an employee will receive at least 77% of their normal salary, if they are working the minimum 33% of their normal hours, with the maximum amount of Government contribution limited to £697.92.
Below is the table provided by the Government, showing how the contribution changes depending on the number of hours worked:
Employee A receives a monthly salary of £2,000 in return for working 160 hours per month, giving an hourly rate of £12.5 per hour. If A’s employer decides it can only offer her 33% of her normal hours, she will work 52.8 hours per month and be paid £660 by her employer for these hours worked. For the remaining 107.20 unworked hours, the Government will pay for 35.73 hours and the employer pays for a further 35.73 hours (one-third each of the unworked hours) at £446.63 each. This will equate to the employee receiving 77% of their regular salary (£1,553.26) (the exact numbers will vary slightly depending upon rounding up and down).
For another example:
Employee B also receives a monthly salary of £2,000 and is contracted for 160 hours per month. If Employee B is able to work 50% of his hours, the employer will remunerate them £1,000 as normal for working those 80 hours. The Government and employer will then contribute £333.33 each, covering one-third each of the employee’s unworked hours.
The Government will pay one-third of the lost hours, regardless of how many hours the Employee is working (subject to them working the minimum 33%).
The scheme will not cover Class 1 NIC or pension contributions which remain payable by the employer.
How can we apply for the scheme?
Employers will be able to make a claim on Gov.uk from December 2020, with payments being made to employers in arrears.
Is it worth employers using this scheme?
Although the CBI and TUC have broadly welcome the scheme, more broadly, there have been mixed reactions. Yes, it certainly is a measure aimed at saving viable jobs, although those employers who have already started to engage in collective consultation of 30 or 45 depending on the numbers of proposed redundancies over 20 or more than 90 over a 3 month period, will lose the opportunity to benefit from the scheme, unless they agree not to follow through on the redundancy programme. It is also hoped that by the end of March 2021, when the Government thinks that the economy will recover sufficiently to end the scheme, employers will have retained the skills sets needed to grow the business as demand picks up. Certainly the scheme and the £1,000 Job Retention Bonus per employee, available to employers of furloughed staff brought back to work at the end of October, will help employers with the costs of employing full time and part time staff.
However, there have been calls for the Government to give more money to employers than just 1/3rd of the remaining 2/3rds of pay that the scheme is intended to provide to staff who work no less than 33% of their normal hours. Looked at plainly, employers are being expected to pay 55% of an employee’s pay for just 33% of their hours, with the extra 22% having no benefit to the employer, whatsoever. It has also been claimed by critics that employers will find it cheaper to employ one person working full time and pay them 100% of their normal salary, than retaining 3 people - each working say only 33% of their normal hours each week, but being paid 55% of the normal pay per staff member for hours worked and not worked. In reality the Government under this scheme are only paying a maximum of 22% of pay or £697.92 capped contribution per month, whereas they were paying up to £2,500 under the outgoing CJRS.
Some employers may feel it is better to try and make the scheme work for them and retain staff in readiness for the up turn. Others will have already decided that their business model needs to be adapted to eliminate over capacity and adjust that down to the level of activity required. They will either be well down that road already or planning for the end of October, what their staff numbers need to and will be.
Support for Self-Employed
It has been announced that the support for self-employed individuals will be extended in a similar way to the JSS. Exact details of how this will work are yet to be revealed.
This article will be updated once further details are announced.
Those who pay their tax by self-assessment can also defer payment until January 2022.
As part of the initial support measures announced at the beginning of the pandemic businesses were able to defer their VAT liability to March 2021, at which point they were expected to pay their liability back in a lump sum.
As a result of the announcement, businesses can opt-in to make smaller, interest free payments up to the end of March 2022, in order to spread their tax liability over an additional 11 month period.
‘Pay as you grow’ scheme for Business Interruption Loans and Bounce back loans
It was also announced that businesses who took out loans (like the Bounce Back Loans (BBLs between £2,000 and £50,000) and Coronavirus Business Interruption Loans of up to £5m (CBILS) to assist them through the pandemic can extend the repayment term from the original six years for a further four years. Extending the repayment term up to 10 years will allow the monthly repayments to almost be halved, easing the burden on businesses struggling financially.
Businesses that are “in real trouble”, in relation to the BBLs, are able to suspend their payments, or switch to interest free payments, for up to six months without their credit ratings being affected.
The deadline for applying for one of these loans has also been extended until the end of November, with a new loan scheme to replace these due to be announced in January.
Extension in temporary VAT reduction for hospitality and tourism sectors
The temporary reduction in VAT is due to be extended for those businesses in the hospitality and tourism sectors as they continue to be some of the sectors most severely affected by the pandemic. The reduction to 5% was due to be reversed in January 2021, but will now be in place until 31 March 2021.
Additional insight into support available to businesses can be found in an article from our corporate and commercial team here.