Practical Guidance Note #3
COVID-19: Chancellor announces an unprecedented wage rescue plan and VAT and self-assessment payment deferrals
This evening Chancellor Rishi Sunak unveiled an unprecedented emergency package of measures aimed at protecting workers’ jobs and wages as the country battles against the coronavirus pandemic.
Earlier in the week, Boris Johnson urged businesses not to make staff redundancies, if at all possible. This latest financial stimulus, that underwrites a large slice of the nation’s pay cheques, is aimed at helping hard pressed employers who are fast running out of cash and deeply worried about not being able to pay their staff.
20th March 2020
At this evening’s briefing the government announced it is to pay 80% of gross wages for up to three months for employees not working (up to £2,500 a month). This measure applies to all businesses, irrespective of size.
These unprecedented measures are part of government plans to protect people’s jobs. Anecdotal evidence suggests many firms have been showing warning signs of collapse, which has already wiped out thousands of jobs. As a result, the UK economy is largely put on pause in response to the coronavirus pandemic.
In the briefing Sunak said ‘Today, I can announce that, for the first time in our history, the government is going to step in and pay people’s wages’. The Chancellor also reiterated Johnson’s appeal to employers to stand by their workers during the coronavirus crisis.
‘The government is doing its best to stand behind you and I'm asking you to do your best to stand behind our workers.’
Chancellor Rishi Sunak
This will take the form of an HMRC grant for people who are not working and is backdated to 1 March. It’s available initially for up to three months and will guarantee 80% of retained workers’ salaries up to £2,500 per month.
To access the scheme employers will need to:
- Designate affected employees as ‘furloughed workers’ (i.e. granted leave of absence) and notify them of this change. NB changing the status of employees is subject to existing employment law and, dependent on the employment contract, may be subject to negotiation
- Submit information to HMRC about the employees that have been furloughed through a new online portal.
Reading between the lines, it appears that these measures are not coming into effect until April so there will be a funding gap. In practical terms, business owners may need to look at their cash flows to ensure they can get through until the support comes in. This may mean talking to your bank in the short term or applying for a government-backed loan when they become available next week.
This measure will now be interest-free for 12 months, rather than the six months originally announced. These loans will also be available from Monday 23 March in response to businesses’ demands to speed up access to support measures.
Sunak also recognised that businesses are struggling right now, so the government will offer cash flow support by deferring VAT payments in the next quarter. No business will pay VAT from now to 30 June 2020 which equates to a £30bn cash injection into the economy. Please note that HMRC will still be taking money if you have set up a direct debit and we advise you cancel this. Further details can be found in our article here.
Sunak announced that he is increasing the Universal Credit standard allowance for the next 12 months by £1,000, as well as increasing the Working Tax Credit basic element by the same amount.
At the same time, the government is strengthening the safety net for self-employed people by suspending the minimum income floor. This means that self-employed people can fully access Universal Tax Credit at a rate equivalent to Statutory Sick Pay for employees.
At first glance, it appears that the self-employed have better illness cover but not access to the 80% that employees will get, which seems odd. We will endeavour to work through this anomaly over the next few days.
There will however be a six month deferral for self-assessment payments. Chancellor Rishi Sunak has deferred these payments which would originally be scheduled for 31 July 2020, to January 2021; providing a real quantifiable benefit to taxpayers in this uncertain time. We will need to watch, as this could mean large tax bills in January and the Time To Pay scheme may be needed for some, details of this scheme can be found in our previous insight.
These levels of economic interventions are jaw-dropping in many respects as the Chancellor concluded by saying ‘We want to look back on this time and remember how, in the face of a generation-defining moment, we undertook a collective national effort and stood together.’
Whether you are concerned about your family, your business or yourself, please do call upon us if we can help during these uncertain times.
‘We want to look back on this time and remember how, in the face of a generation-defining moment, we undertook a collective national effort and stood together.’
Chancellor Rishi Sunak