How Will the Winter Economy Plan Work?
The end of the furlough scheme has been hanging over the business world ever since the Government announced the extension in May. However, with the number of positive cases on the rise and local lockdowns cropping up all over the country, the pressure has been growing on the Chancellor to offer the business community a bit of hope. His solution comes in the form of the Winter Economy Plan, a comprehensive package comprising wage support, loans and deferment of taxes. Here’s what it includes.
The main feature is a new flexible working initiative, which comes into force from November 1st. The scheme will be separate from furlough which means you’ll be able to apply even if you haven’t taken advantage of furlough before. Its aim is simple: to encourage companies to cut hours rather than jobs.
Because of that, it is not available for people under notice of redundancy. So, if you have put employees on notice, you’ll have to keep paying their full wage until they leave.
Under the scheme an employee can work part time with you, the employer, paying them for their hours worked. The remainder will be split three ways with the government paying a third, you paying a third and the employee paying a third in the form of lost wages.
The net impact will see employees receive 77% of their full income with the Government subsidising 22% of their wages. In order to qualify, they must be working at least 33% of their full working hours and the grant will be capped at £697.92 per month.
Self-employed support scheme
Self employed people still have until October 19th to apply for the second self-employment support grant, and the good news is there is a third and fourth grant coming. However, the third grant will be significantly less generous than those which have gone before. You’ll only be able to claim 20% of your operating profits up to a total of £1,875 per month.
The qualifying criteria is exactly the same as before which means the same people who missed out on the first two grants will also miss out on these, namely the newly self-employed, people who pay themselves through a limited company and with profits of more than £50,000.
Details of the fourth grant have not yet been released so they may be leaving themselves room to make changes. If you haven’t been able to apply for support as yet it is possible that the fourth grant may have something for you.
The deadline for applications for any of the three types of government loans, the bounce back loan, the business interruption loan and the large business interruption loan has been pushed back until the end of November.
Small businesses applying for the bounce back loan will see their terms rise from six years to ten, almost halving their monthly repayments. As a business, you can still apply for between £2,000 and £50,000, or 25% of your turnover, with zero interest for the first year. Beyond that, interest rates are kept at 2.5%.
If you hit a temporary a cash flow crisis, you can take advantage of a ‘pay as you grow’ feature which allows you to suspend repayments for up to six months or arrange to make interest only payments.
The government also says it intends to give lenders providing the Coronavirus Business Interruption Loan Scheme, the ability to extend the length of loans from six years to ten if it will help them repay the loan.
Tax cuts and deferrals
Tax deferrals will help to ease the pressure on finances. The temporary 15% cut in VAT for the tourism and hospitality sectors has been extended until March next year. This, they hope, will give firms enough breathing space to keep staff on.
A new payment scheme will also give companies the option of paying back in smaller instalments rather than a lump sum in March. Businesses can pay 11 interest free payments during the 2021/22 tax year.
Self-employed people have a 12-month extension from HMRC which means payments can be deferred from July 2020 and those due in January 2021 will now be due in January 2022.
Will it work for your business?
The support package has been warmly welcomed by business groups and unions, but this is still a significant step down from the furlough scheme and even the Chancellor admits it won’t stop all job losses.
Many businesses, which are unable to open at all during the pandemic, such as the late-night hospitality sector, will also be left without support.
If you can’t reduce the hours your employees work, these changes will also mean nothing although you may still be able to fall back on other measures such as the business support loans or the job retention bonus.
Equally, many businesses will be crunching the numbers to see if the scheme makes financial sense for them or not. Because you’ll have to pay a third of the employee’s remaining wage, you will effectively be paying for more work than they are providing.
As such, you may feel it makes more financial sense to retain one member of staff full time rather than have two members of staff working part time. This could lead to some difficult choices in the coming months as employers choose between staff members.
Each business will also need to assess whether they can continue operating at the required level with staff shifted to part time work.
Deciding on the most productive and cost-efficient option may not be straightforward. To give yourself the best chance possible, you may benefit from advice from an external expert who can look at your situation and help you decide on the best way forward for your organisation.