Coronavirus Job Retention Scheme
The centrepiece of the package was the new Coronavirus Job Retention Scheme.
Simply put, any employer will be able to ask HMRC for a grant to cover 80% of an employee’s wages, up to £2,500 per month, for any employee who is not working but is kept on the payroll and not laid off – so basically to protect employees who might otherwise have lost their jobs.
This is a ‘Government salary underwrite’ per employee of up to £30,000 per annum – and it doesn’t even come with a requirement for employers to top up the wages to 100%. They can do that if they want to.
This is an historic moment, as no British Government (Labour or Conservative) has ever done this – but then we are in uncharted waters.
Quarterly VAT Payment Deferral
The Chancellor’s second major measure is to defer the next quarter of VAT payments – certainly to the end of June and potentially to the end of the year. What he said on timing here seemed to need some clarification.
This measure is intended to help businesses pay employees and keep them in work by easing their cash flow.
Businesses will owe the VAT eventually and so, in this economic climate, some businesses may be loathed to ‘spend their VAT money’ in this way if they think they won’t earn enough replacement cash in the meantime to be able to pay HMRC when they ultimately ask for it. It is the classic way that businesses get into trouble.
So we’ll have to ‘wait and see’ how effective this measure will be. Nevertheless, it will be very welcome indeed to businesses from a cash flow perspective.
Deferral of self-assessment payments
Finally, there was a measure that will be very welcome to the self-employed – the deferral of the July 2020 self-assessment payments until January 2021. So playing to the self-employed part of the economy as well as to the employed.
What we haven’t seen yet is any underwriting of the earnings of the self-employed – politically more difficult maybe. They are, though, people who create jobs for the employed whose pay is being underwritten, and some of the self-employed are big businesses themselves.
Equally, if the self-employed ‘go under’ personally as part of this crisis, then their employees won’t have a job to be ‘furloughed’ within the Government’s salary underwrite scheme. So, again, we may end up seeing more measures to address the pay of the self-employed, either independently of, or as part of, wider measures to support their businesses and the economy. More “wait and see”.
The Government is well aware that in the financial crash of 2008 the then Government was perceived to have bailed out the banks but forgotten about businesses and the people. They are not making that mistake twice, that is for sure – and quite right too. The Coronavirus Job Retention Scheme will likely become one of this Government’s defining moments – they stood by the workforce and how.
Will this be the end of Government support for people and businesses? Unlikely. The VAT deferral and self-assessment deferrals are just that, deferrals (and very welcome ones). What we haven’t seen yet are direct tax cuts or the forgiveness of tax obligations instead of deferrals. Or, indeed, wider measures to address the pay of the self-employed and the non-employee financial obligations of businesses.
The Government has listened though. it has faced criticism that its financial assistance of businesses to date has been loan finance. That obviously needs to be repaid and so is less attractive and effective as a bailout option. The Coronavirus Job Retention Scheme is recognition of that.
It also, in some way, recognises that ultimately businesses go out of business for one reason and one reason alone - they run out of cash to fund their obligations. It’s not because they aren’t profitable and it’s often not because they aren’t fundamentally good businesses. It is always ultimately lack of cash. It’s simple stuff at the end of the day.
So what might happen next?
Well, we may see more absolute tax assistance in the form of those tax cuts and forgiveness of tax obligations as this crisis moves forward, and we may see those even wider measures to assist the self-employed and to protect businesses against their non-employee financial liabilities – such as bank and landlord obligations – and so, eventually, we might even see some form of ‘freezing’ of the economy.
That’s all for the future. But what is for certain is that on Friday 20 March 2020, Rishi Sunak, the Chancellor of the Exchequer, and the British Government stood up to protect workers and their businesses in a way that no other British Government has ever done and in a bold and historic attempt to defend the UK economy from the effects of the coronavirus pandemic. Bravo!
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Client Alert 2020-133