Nick Hobden, head of employment explains the new support schemes announced by the Government
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. As of 22 October, he has gone further and extended these new measures both for businesses that remain open during the pandemic and for those businesses that have to close due to local lockdown or tier 2 and 3 measures.
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) (as now extended) and give an overview of the other support for business announced.
Job Support Scheme
The largest package of support for businesses is the Job Support Scheme (‘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) has two limbs, the ‘JSS Open’ and the ‘JSS Closed’, with an aim of supporting 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 will be eligible 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 undertake a Financial Impact Test, demonstrating that their turnover has remained equal to or fallen to show they have been adversely affected due to 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 20% of their usual hours, including those coming back from furlough.
As before, 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 scheme will not cover Class 1 NIC or pension contributions which remain payable by the employer.
It should be noted that the JSS differs from the CJRS in that it cannot be used for employees who have been made redundant or who are serving a contractual or statutory notice period.
Use of the JSS will also not affect any entitlement to the Job Retention Bonus that becomes available at the end of January.
JSS Open - 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.
The original incarnation of the scheme as announced on 24 September meant employees had to work at least 33% of their ‘usual hours’ for which they would be paid as normal. The Government had then committed to covering 33% of the remaining 2/3rds of ‘lost’ hours (up to a cap of £697.92 per month), with the employer having to cover a further 33% of the lost hours (i.e.22% - so a 55% ‘all in’ cost to the employer for hours worked and not worked). This would mean that a qualifying employee on the scheme would be earning at least 77% of their normal salary.
The Chancellor announced extensive changes to the Scheme on 22 October which reduced both the minimum hours employees have to work, along with the contribution employers have to make.
Under the new terms of the scheme employees only need to work a minimum of 20% of their usual hours to be eligible. This means that an employee could be eligible if they only work one day a week out of a normal full time five day week. These hours will be paid by the employer as normal.
The contribution towards lost hours that will have to be made by the employer has also drastically fallen from 33% of the hours not worked to just 5%, whilst the government contribution for lost hours has increased from 33% to 61.67%, with a maximum payment of £1,541.75 per month. This will result in the Government paying 49% of an employee’s salary if they are working the minimum 20% of hours, whilst they remain earning 73% of their normal salary.
The below chart demonstrates the amounts paid by each party if an employee is working the minimum 20% of normal hours:
An employee usually works five seven hour days each week in return for a salary of £4,000 per month. As a result of the pandemic, there is only enough work available for them to work one day a week. Their employer will pay them £800 for these days in the month. Their employer will have to pay them a further £200 per month, to cover 5% of the lost hours and will have to pay Employer National Insurance Contributions and auto-enrolment pension contributions on the payments made. The Government will contribute a further £1,541.75 (as capped) of the lost hours, meaning the employee is earning £2,541.75 per month (63.5% of their normal salary). The remaining portion of their salary is lost.
What are ‘usual hours’? – employees who work fixed hours with fixed pay
This is a relatively straightforward calculation, and usual hours are calculated by taking the greater of:
- The hours that the employee was contracted for at the end of the last full pay period ending on or before the 23 September 2020; or
- The hours that the employee was contracted for at the end of the last full pay period ending on or before 19 March 2020, which may be the same number of hours as calculated under the CJRS.
What are ‘usual hours’? – employees who work variable hours
If employees are not contracted to a fixed number of hours, or their pay depends on the number of hours they work, then usual hours is calculated by taking the greater of:
- The numbers worked in the same calendar period in the tax year 2019 to 2020;
- The average number of hours worked in the tax year 2019 to 2020; or
- The average number of hours worked from 1 February 2020 until 23 September 2020.
These calculations should include hours paid as annual leave and statutory leave.
Further guidance on the calculation of ‘usual hours’ is expected before the end of October.
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?
The new incarnation of the scheme is undoubtedly more appealing to employers than the previous iteration, which saw them having to pay 55% of an employee’s salary for just 33% of work. As a result the scheme was widely criticised for leading to a situation where it is cheaper for an employer to retain one staff member full-time than retain three employees on 33% of their normal hours.
This new scheme will be much more attractive to employers, with Kate Nicholls, the UK Hospitality chief executive describing the changes as “a hugely generous package of support and very welcome news just when we needed it”, whilst a spokesperson for the Chamber of Commerce hailed the changes to the scheme as a “significant improvement”.
Extension of the Job Support Scheme – financial support in the event of enforced closure – ‘JSS Closed’
On 9 October, Chancellor Rishi Sunak announced an extension of the Job Support Scheme due to begin on 1 November. As case numbers and hospitalisations are on the rise around the UK, it seems inevitable that harsher restrictions are inevitable and will result in the closure of businesses in areas with high levels of infection or localised lock downs.
In an attempt to mitigate some of the economic misery that would accompany further business shutdowns, the Government have announced they will pay two-thirds (67%) of an employee’s usual hours if their employer is legally required to shut due to coronavirus restrictions, up to a monthly cap of £2,083.33 a month per employee.
Employers must create a written agreement with their employees stating that that have been instructed and agree to cease work for at least seven consecutive days to be eligible for this support. Copies of these agreements must be kept for five years and made available to HMRC upon request. Employees will only be eligible if it is their ‘primary place of work’ that is closed.
The JSS Closed will not be applicable for businesses that must close due to specific workplace outbreaks, as the closure must be a direct result of coronavirus restrictions.
The only contribution due by employers will be the NIC and pension contributions, although it is expected that around half of all claims will not incur these contributions and therefore be at no cost to the employer.
In line with the rest of the scheme, it will begin on 1 November and run for 6 months with a review due in January, and payments will be made in arrears via a HMRC claims service that will be available from early December. The eligibility requirements for businesses remain the same as the rest of the scheme.
Self-Employed workers - Self-employment Income Support Scheme Grant Extension and Self-Assessment payment deferrals
It has been announced that the Self-Employment Income Support Grant will be extended in a similar fashion to the JSS, covering the period from November 2020 to the end of April 2021.
The support will come in the form of two separate grants, one to cover the period of November 2020 to January 2021, and the second covering February 2021 to April 2021.
The Grant Extension can be claimed by any individual who was previously eligible for the Self-Employment Income Support Scheme, although they do not have to have claimed either of the grants previously available. The individuals must declare that they intend to continue to trade and either are unable to do so due to COVID-19, or are trading at a decreased level as a result of the pandemic.
The Grant will:
- be taxable and subject to National Insurance Contributions;
- cover 40% of average monthly trading profits;
- be paid in a single instalment covering three months profit; and
- be capped at £3,750 in total.
Guidance on how to apply for the grant will be uploaded to Gov.uk in due course.
In the summer individuals were also given the option to defer their July 2020 self-assessment payment due to financial difficulties that arose as a result of the coronavirus. If the deferral was chosen, then the deferred July 2020 payment can be paid at any time up until 31 January 2021.
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.
Coronavirus Business Interruption Loan Scheme (BILS)
This scheme is to assist small and medium-sized businesses to access loans and other kinds of finance, up to an amount of £5 million. The Government will in return guarantee 80% of the finance to the lender whilst paying any interest or fees in the first 12 months.
The Scheme is eligible for any UK business with a turnover less than £45 million who has been adversely affected by the pandemic.
The length of the loan depends on the type of finance applied for:
- up to 3 years for overdrafts and invoice finance facilities; and
- up to 10 years for loans and asset finance facilities.
There are over 50 lenders participating in the scheme, and if one lender turns you down you can apply to others participating in the scheme. Find a lender to suit your business needs here.
Coronavirus Bounce Back Loan (BBLS)
The BBLS is similar to the BILS, however under this scheme small and medium-sized businesses can borrow up to 25% of their turnover, up to a maximum amount of £50,000.
The Government will guarantee 100% of the loan with no fees to pay in the first 12 months, with interest being payable at a rate of 2.5% thereafter. The loan will last 10 years with no penalties for early repayment.
There are 11 lenders participating in the scheme, and an appropriate lender should be approached directly. You can find details of the lenders participating here.
‘Pay as you grow’ scheme for Business Interruption Loans and Bounce back loans
It was also announced that businesses who took out loans to assist them through the pandemic under the BILS or BBLS as described above, 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.