Update on Coronavirus financial support measures for businesses and the Summer Budget
The last few months have been a challenging time for businesses large and small, as well as the self-employed. In response to the Coronavirus crisis, the UK government introduced a range of unprecedented measures to support our homegrown businesses and try to prevent a large-scale economic recession.
Here at PSF Accounting we have done our best to support our clients. Although we cannot provide financial advice, we can and will direct clients to the appropriate avenues to gain support. As things in the UK are now getting somewhat back to normal, the next challenge for business owners will be weathering the longer-term impacts of the crisis and planning for 2021. In this blog we will provide a quick recap of the financial support currently on offer from the government and recent updates announced in the Chancellor’s ‘Summer Budget’.
Furlough Scheme update
Since February, employers have had the option of placing staff on furlough for a minimum of three weeks at a time. Currently, 80% of furloughed employees’ pay packets (up to £2,500) is covered by government funds, and employers have the option of topping up the remaining 20% from their own pocket. The furlough scheme has been extended to October 2020. From 1st July, employers have had the option to un-furlough employees on a part-time basis. Employers must pay full time wages for any hours worked (which can be any number of hours within an employee’s contract) and the government will pay 80% of wages for any amount of furlough time.
From August, businesses will need to pay employer’s pension and national insurance contributions any hours an employee is on furlough, although the government will still pay 80% of their wage. In September, the government will pay 70% of furloughed staff wages (up to £2,190) and employers will be expected to top up at least 10% of their salary. In October, the government will pay 60% of furloughed staff wages (up to £1,875) and employers will be expected to contribute 20% to bring this up to 80%.
Be aware – If you have not furloughed an employee before 1st July, you cannot now furlough them going forward. The scheme is being drawn to a close by the end of October and is highly unlikely to be extended.
Employers therefore need to plan ahead as from August onwards they must pay some money towards their employees’ costs, even if they remain on furlough. To encourage job retention, the Chancellor announced in the Summer Budget that employers who retain previously furloughed staff until the end of January 2021 will receive a £1,000 reward per retained employee. Whether this sways employers to keep staff on remains to be seen.
Small business bounce back loans
Over 860,000 bounce back loans have been issued in the UK since the scheme was launched in May.
Businesses are able to borrow £2,000-£50,000 from a list of banks, capped at 25% of your turnover for 2019. No interest will be charged and no repayments required for the first 12 months after you take out the loan. All banks will charge a fixed 2.5% annual interest after 12 months. Loans are likely to last six years.
There are currently 14 banks offering bounce back loans, but many of these will only grant them to existing customers. HSBC and Barclays are the best option if your current business bank isn’t offering loans. It’s worth noting that Tide, a relatively small bank, has recently halted lending bounce back loans, meaning thousands of business owners on their waiting list will be looking elsewhere for support.
Self-Employed Income Support Scheme (SEISS)
Self-employed individuals can apply for government grants if their business has been financially affected by the Coronavirus crisis. Applications for first SEISS grant, which covers 80% of income for three months’ profits, closes on midnight 13th July. So, if you think you might be eligible now is the time to apply. The second, and final, grant will open on 17th August and top up income 70% for three months’ profits. You don’t have to have claimed the first grant to claim the second one, and you should not claim the second grant unless your business is adversely affected by the virus on or after 14th July.
The self-employed were told weeks ago that there will be no further government support for them after the second SEISS grant in August. The obvious option for support after this is applying for Universal Credit.
In order to boost the hospitality industry, the Summer Budget announced VAT cuts from 20% to 5% for restaurants, cafes, hotels, and attractions such as cinemas and zoos. The new rate of VAT will be in place from now until 12th January 2021. It is hoped this will improve consumer confidence and increase spending in the sector, protecting businesses and jobs.
In addition, any home office equipment employees are asked to purchase due to the Coronavirus crisis will now classed as a non-taxable benefit when reimbursed by the employer. This is a temporary tax break and will last up to the end of the 2020/21 tax year (5th April 2021).
Young employee Kickstart Scheme
From August, a scheme will be launched to encourage businesses to employ 16- to 24-year-olds. The government will pay 100% of the National Minimum Wage for 25 hours a week to those aged 16-24 who are on Universal Credit and deemed to be at risk of long-term unemployment. Employers who want to be involved in the scheme must provide a work placement of at least six months and are encouraged to top up the wage.
Additionally, business owners are being encouraged to take on young people as trainees (a work placement alongside classroom-based lessons). Firms in England will be given a £1,000 grant for each work experience placement they offer, and trainees will be expected to complete up to 90 hours of unpaid work.