On Friday the Chancellor announced a range of measures designed to try and limit the economic damage caused by the Covid-19 pandemic. The scale of intervention is unprecedented in peace time and although details of how these measures will work in practice are scarce this is clearly a real step-change in the level of government support.
The Chancellor announced:
- A delay in the next quarter’s VAT payment, not payable until March 2021
- A cancellation of the July 2020 payment on account for income tax, now payable January 2021
- A grant support system for temporary staff lay-offs
- Further reliefs and grants linked to the business rates system
- 12 month interest free loans to businesses (as opposed to 6 months previously announced)
- A temporary increase in the level of certain state benefits
The first two tax payment deferrals are acceptance of practical reality. Businesses were unlikely to pay them anyway. They seem jaw-dropping but only because things are changing very fast by the day.
When calling the HMRC Time to Pay (TTP) line on Monday we were getting through straight away. A couple of days later, there were delays of two hours or more. Frankly, everyone was going to be allowed to defer their VAT for three months and their income tax in July, so an announcement was necessary to take the pressure of the phone lines and to let people focus on other things. Interestingly, PAYE wasn’t mentioned (this may be a due to cost or may be for other reasons, discussed more below).
For those of you wondering whether HMRC’s systems will be able to cope with these changes then I suspect the answer is possibly not. But that is a problem for a later date.
Then there is the wage support announcement, with the Government effectively becoming the employer of last resort and paying up to 80% of the salary (to a maximum of £2,500 per month) for those who otherwise may have been made redundant. These will be direct payments made to employers by HMRC via a system yet to be built which leads to the suspicion that it may include net settlement against PAYE liabilities for those employers that still have some employees on board.
This is certainly bold and big. It is available to everyone but it helps certain sectors more. It uses the term ‘furloughed workers’, which in normal language translates as those employees that have no work to do but who the government doesn’t want made formally redundant by businesses yet. The hope is that normality returns quickly and employers can get these people back to work.
This will support better paid employees in the hospitality, retail and arts sectors. However, many workers in these industries are on zero hours contracts or are ‘gig’ workers treated as self-employed. Pressure will move for more to be done for those workers. Other businesses in the service sector such as private schools and professional services firms might well be saved by this announcement. There are bound to be many others. It is truly a big help to many businesses trying to survive.
The difficulty is that the workers have to be unable to work, so there is no business disruption subsidy for employees more widely. If staff cannot work efficiently at home then the employer now needs to decide whether to furlough them or not. The Government’s aim is to get as many people at home as possible to contain the spread of the virus, and if that means not working they will be paid not to work – worth reading that sentence again. Everything is being turned on its head. We don’t want you to work and we don’t want you to pay your tax! Staggering.
We welcome these measures and, although a lot of details still need to be worked out, they appear to offer a real boost to our clients’ chances of making it through these difficult times with jobs protected. We’ll be working and supporting our clients to help them to benefit from all the support available.