Sunak scrambles – will it pay off?
More details will emerge in the coming days but the headline announcements and measures from today’s statement are:
- Jobs Support Scheme Announced
This is the replacement for the Coronavirus Jobs Retention Scheme (RJCS) which expires at the end of October.
The six-month long scheme will begin in November and will subsidise the wages of people already in work giving employers an additional option instead of making them redundant.
Workers must work a third of their usual hours and be paid by their employer as normal. In the remaining time they aren’t working, their employer will pay a third of their usual pay and the government will contribute another third.
The Treasury estimates that including the pay for hours worked, employees will get 77% of their usual pay packet. Of this employers will be required to pay 55% of the usual pay, with a top up of 22% from the government.
Small and medium sized businesses can apply for it and also claim the jobs retention bonus but large companies will only be eligible if their turnover has fallen by a third or more.
The grant for self-employed workers will be extended on similar terms.
- Business Loans
“Pay as you grow” was announced to help companies defer payment of their state-backed business loans.
The existing five-year loans can now be extended to six to 10 years meaning repayments could be halved in some cases. Interest-only repayments will be allowed and firms in “real trouble” will be able to suspend their payments altogether.
The Chancellor confirmed that all of the government’s state-backed loan schemes will be extended until the end of 2020 and a new loan guarantee programme would begin in January with details to be announced later.
- VAT Deferrals
Businesses who previously deferred their VAT payment, will also be allowed to spread their payment over 11 separate payments, avoiding a potential headache in March 2021 when the lump sum VAT payment was originally expected to fall due.
Self assessment taxpayers will also be eligible for a separate additional 12 month extension from HMRC on the Time to Pay self-service facility. Payments deferred from July 2020 and those due in January 2021 won’t have to be paid until January 2022.
- VAT Reduction extended
The hospitality and events industry is in trouble.
Facing new restrictions possibly for another six months they were hoping for some good news and support and there was some announced.
The current 15% reduction on VAT from 20% to 5% would remain in place until 31st March 2021.
- Winding up Petitions / Landlord Forfeiture
In the background, restrictions on winding up petitions, statutory demands and landlord forfeiture have been extended.
Originally relief from these measures was due to end on 30 September 2020, however these have now been extended to 31 December 2020.
Chris Horner, Insolvency Director of Business Rescue Expert has been going through the fine print and spotted some other interesting items that haven’t got the same attention as the headlines.
He said: “There’s a lot to process and understand but we can immediately see that there’s some bad news for creditors, and underwhelming news for the hospitality industry. We can see where the Chancellor is coming from, but will it be enough to stabilise the upcoming round of closures and job losses?
“On the other side of the fence, the temporary ban on winding-up petitions which was due to expire in the Autumn has now been extended to the end of December 2020.
“This means it’s harder for creditors to lawfully use insolvency as a tool to recover outstanding debts, although they are still able to use High Court Enforcement Officers if required.
“Fraud prevention will be more difficult because while the government will pay for a third of hours not worked relative to a normal working pattern, there’s no way for them to tell how many hours people are really working.
“Company directors also need to be aware that whilst winding up petitions cannot be issued, the relief from wrongful trading provisions has not been extended. This means that if their business is not viable and insolvency is inevitable then if they delay taking a decision then they could be held personally liable for any losses made by the company that occur outside of 1st March to 30th September 2020.
“We’d advise any director with concerns to get in touch with us to see what we can do to help – sooner is better than later because you generally have more options and choices available to you earlier on.”
If the lights are amber for company directors and creditors, they are flashing red for hospitality businesses.
Chris Skeith, CEO of the Association of Events Organisers was disappointed by the measures announced.
He said: “The Chancellor’s proposals today fail to provide the support the UK events and hospitality sector desperately needs.
“Given no UK events are permitted to take place until March 2021 at the earliest, a wage subsidy is of little use to businesses not able to trade at all and the sector is facing an existential threat to its viability.
“Without targeted action, the future looks bleak with widespread business insolvencies and job losses a certainty. This is a desperate day for the industry.”
We’ll write more in the near future what these announcements could mean and how they combine with the increased restrictions announced earlier in the week to alter an already changed business landscape.