Latest Statement from Chancellor

Winter Economy Plan

In our new reality, we no longer have an autumn budget to look forward to, but instead the Chancellors Winter Economy Plan announced earlier today.

We have little detail at present, and the below is gleaned from the speech and the initial guidance notes issued, but so far we know:

  • The Job Retention Scheme is being replaced by the Job Support Scheme.
  • There will be no requirement for an employee to have been historically furloughed in order to come under the Job Support Scheme, so it’s a clean slate and companies can revisit their employment requirements from 1 November.
  • A RTI submission notifying payment to the employee in question must have been made to HMRC in respect of any employee for which a claim is made on or before 23 September 2020.
  • It will run for 6 months.
  • Employers using the Job Support Scheme will also be able to claim the Job Retention bonus if they are eligible for it.
  • Employers must agree the new short-time working arrangements with their staff, any changes to employment contracts must be by agreement and notified to the employee in writing, with the agreement available for HMRC on request.
  • Employees will be informed by HMRC of full details of claims made.

The scheme will operate so that an employee will be expected to work, and be paid for at least 33% of their normal working hours.  The government may increase this threshold after 3 months.

Employees will be able to cycle on and off the scheme and can work different patterns each month, but each short-term working arrangement must be for at least 7 days.

For each hour not worked, 1/3 of their salary will be paid by the government and 1/3 by their employer, the initial notes indicate that the 1/3 not paid won’t be capable of being topped up.  The government contribution will be capped at £697.92 each month.  This caps the monthly salary for someone working a 1/3 of their normal hours that is eligible for the grant at £3,125, the same as the cap for the existing furlough scheme. 

So, if we take an employee who is paid £1,500 per month and works 33% of his normal hours.

  • He will work and be paid £500 (1/3 of his time) at his normal contracted wage.
  • For the balance of £1,000, the employer will pay £333 and the government will pay £333.
  • So, he receives £1,167 (about 77% of normal salary) and it costs his employer £833

If however, he works 50% of his normal hours:

  • He will work and be paid £750 (1/2 of his time) at his normal contracted wage.
  • For the balance of £750, the employer will pay £250 and the government will pay £250.
  • So the employee receives £1,250 (about 83% of normal salary) and it costs his employer £1,000

The % of normal wages received and split of employer and employee cost up to the government capped contribution can be summarised as follows:

The scheme will be open to SME’s – we presume this will be the normal EU definition of an SME, that is less than 250 employees and either a turnover of less than Euro 50 million or a balance sheet total of less than Euro 43 million, but don’t know yet if this will be the definition used.  It will also be open to larger company’s whose turnover is falling, and what defines a falling turnover is also unknown at this stage.

Employees will not be able to be made redundant or put on notice of redundancy during the period within which a grant is being claimed.  For large companies there will be restrictions on capital distributions, such as dividend payments or share buybacks to shareholders.

Our experience of the Job Retention Scheme was that whilst valuable, it was far more complex than it initially appeared, and the early signs are that the new Job Support Scheme will be every bit as complex.  As and when more detailed guidance is issued, we will update this article.

Other points

  • The existing grant for self-employed people is being extended.
  • To be eligible for this grant extension the individuals must be eligible for the existing scheme, be actively trading, intend to continue to trade and declare that they are impacted by reduced demand due to coronavirus in the period they are claiming for.
  • The extension will provide two grants and last for 6 months, from November 2020 to April 2021.  The first grant which will be subject to income tax and NIC , runs for the first 3 months will cover 20% of average monthly trading profits capped at £1,875 in total.  The level of the second grant is to be reviewed and set in due course.
  • The self assessment tax payment already deferred from 31 July 2020 to 31 January 2021, and presumably the full 31 January 2021 liability will be split over 12 months
  • The VAT payments deferred to next March will now be able to be spread over 11 interest free payments
  • A “pay as you grow” scheme was announced for businesses, allowing them to extend their bounce back loans from six to 10 years, reducing their payments
  • Businesses can also move to interest-only payments or suspend repayments for six months if they are "in real trouble". Credit ratings will be unaffected
  • The government guarantee on Coronavirus Business Interruption Loans will be extended to 10 years and a new successor loan guarantee programme will be announced in January
  • The temporary reduction of VAT from 20% to 5% for some sectors will remain in place until 31 March 2021