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Usually around this time of year, the Autumn Budget takes place to outline the state of the economy and the Treasury’s plans to recoup through taxes what they’ve spent.
2020, however, has been a year like no other. The economy is in dire straits with the UK’s debt soaring past £2 trillion at the end of August, thanks largely to the £174 billion spent on support measures following COVID-19.
As coronavirus cases continue to spike, Chancellor Rishi Sunak has put his plans for a Budget this autumn on hold until next spring. Instead, new emergency support measures get under way next month.
The job support scheme kicks in on 1 November 2020, immediately after the costly furlough scheme winds down, and will run for an initial six months until 30 April 2021. It’s available to employers, regardless of whether they have already used the furlough scheme.
It requires employees to work at least a third of their regular hours and be paid at their usual rate. For the remaining hours not worked, the Government and the employer will each pay for a third of the worker’s wages, with the state contribution capped at £697.92 a month.
The scheme is available to all small and medium-sized businesses, while large businesses will only be able to use it if they can show their turnover was reduced by the virus.
A third tranche of taxable grants will also be available through the self-employed income support scheme (SEISS) from 1 November 2020, although these are far less generous than the first two rounds.
These will only be available to self-employed individuals who are currently eligible for the SEISS and actively continuing to trade, but are facing reduced demand due to COVID-19.
The next taxable grant covers 20% of average monthly trading profits, paid in a single instalment for the three months from 1 November 2020 to 31 January 2021, and is capped at £1,875 in total.
A cut in the standard rate of VAT – from 20% to 5% – for businesses in the hard-hit hospitality and tourism sectors has been extended until 31 March 2021, shoring up demand for firms that are really struggling. In addition, VAT-registered firms that deferred their payments between 20 March and 30 June 2020 will no longer have to pay a lump sum on or before 31 March 2021. Instead, they can split this repayment into smaller, interest-free payments over the course of 11 months.
Businesses have an extra month, until 30 November 2020, to apply for bounce-back loans (BBL) and business interruption loans. They can also spread the repayments over ten years instead of six.
More than 81% of BBL applications have been successful so far, providing businesses with in excess of £38bn. However, the National Audit Office fears up to 60% of those successful claims may never be repaid.
Company registrations increased significantly after the BBL scheme was announced in April, reaching a record 21,616 per week by the end of June, prompting concerns fraudsters have set up bogus firms to claim up to £50,000 on each application.
While Sunak has kicked his Autumn Budget 2020 down the road, others are speculating as to how the Chancellor intends to plug the huge hole in public finances next spring and beyond.
Given the size of the deficit, he won’t be able to claw it all back in 2021/22 and will almost certainly have to adopt a medium-term approach to any tax changes he announces.
In March, Sunak floated the idea of increasing National Insurance contributions for the self-employed to bring them in line with rates paid by employees. He might revisit that next spring.
And once VAT is taken out of Europe’s hands in the new year after the UK formally leaves the EU, the Chancellor may want everything subjected to the standard rate of VAT. Although changing the VAT system may prove to be a bit like a game of Jenga.