INTRODUCTION

Today’s ‘Economic Update’ by the Chancellor, Rishi Sunak, arrived six months and a day after the Prime Minister announced the start of lockdown on 23 March. Twelve days earlier the Chancellor had made his Budget debut, announcing a “temporary, timely and targeted” package of measures to “deal with the coronavirus”. Their estimated total cost was £12 billion.

That figure now looks like small change in terms of the cost of the pandemic so far. This week’s HMRC statistics on the response to Covid-19 show that to 20 September:

• The total value of claims made under the Coronavirus Job Retention Scheme (CJRS) was £39.3 billion, covering 1.2 million employers and 9.6 million jobs. The CJRS will finish at the end of next month. From the start of October employers will have to meet an additional 10% of the CJRS payments, as well as NIC and pension liabilities.
• The Self-Employment Income Support Scheme (SEISS) received 4.9 million claims across its two payment periods, totalling £13.4 billion.
• Over £58 billion of finance had been approved under the government’s four loan schemes. Almost two-thirds of this was represented by the Bounce Back Loan Scheme (BBLS) under which the government provides 100% guarantees for lenders to more than 1.25 million small borrowers.

These figures tell only part of the story. There is also the cost of one year’s business rates relief, grant funding and enhancements to social security benefits. The latest (August) central scenario projection from the Office for Budget Responsibility is for government borrowing to reach £372.2 billion in 2020/21 against the £54.8 billion estimate it made at the time of the Spring Budget.

The latest statement from the Chancellor will increase this year’s borrowing further. However, the consensus among economists is that for now, life support for UK plc trumps any consideration of public debt levels. Today Mr Sunak has divided that support into three main areas:

1. Employment
2. Loan arrangements
3. Taxation

EMPLOYMENT

Job Support Scheme

The Chancellor made clear that the CJRS will end on 31 October, as planned. Its replacement will be the Job Support Scheme (JSS), which will run for six months from 1 November. Under the terms of the scheme:

• Employees will need to work a minimum of 33% of their normal hours.
• For every hour that is not worked, the employer and the government will each pay one third of the employee’s usual pay, with the government contribution capped at £697.92 a month. Employees working at least one third of their normal hours will receive at least 77% of full pay, subject to the government cap. Employers will pay at least 55% of normal wages.
• The employer will be reimbursed in arrears for the government contribution.
• The employee must not be on a redundancy notice.
• The scheme will be open to all employers with a UK bank account and a UK PAYE scheme. All small and medium-sized enterprises will be eligible; large businesses will be required to demonstrate that their business has been adversely affected by Covid-19. The government expects that large employers will not be making capital distributions (such as dividends) while taking advantage of the scheme.
• Claims for the JSS will not affect eligibility for payment of the £1,000 Job Retention Bonus announced in July and due from February 2021.

Self-Employment Income Support Scheme

The SEISS will be extended in a new form for six months from 1 November 2020. The scheme’s new terms are:

• The new SEISS grant will only be available to self-employed individuals currently eligible for the existing scheme who are actively continuing to trade but are facing reduced demand due to Covid-19.
• The extension will be in the form of two taxable grants:
• The first grant will cover a three-month period from the start of November until the end of January. This initial grant will cover 20% of average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £1,875 in total.
• The second grant will cover the following three-month period starting in February. The government will review the level of the second grant and set this in due course.

LOAN ARRANGEMENTS

The closing application date for the four main loan schemes will be extended to 30 November.

Bounce Back Loan Scheme

The BBLS provides loans of between £2,000 and £50,000, capped at 25% of turnover, with a 100% government guarantee. Under the original BBLS, the borrower did not have to make any repayments for the first 12 months, with the government covering the first 12 months’ interest payments. The maximum loan repayment term was six years.

Under new ‘Pay as You Grow’ options for BBLS:

• New and existing borrowers will have the option to repay their loan over a period of up to ten years.
• UK businesses will also have the option to move temporarily to interest-only payments for periods of up to six months. This option can be used up to three times.
• Alternatively, businesses can pause their repayments entirely for up to six months, although this option is only available after six payments have been made and can be used just once.

Coronavirus Business Interruption Loan Scheme

CBILS lenders
will be allowed to extend the term of a loan up to ten years, while retaining the benefit of the 80% government guarantee.

Coronavirus Large Business Interruption Loan Scheme

The Coronavirus Large Business Interruption Loan Scheme (CLBILS) will continue in its current form until the end of November.

Future Fund

The operation of the Future Fund, which provides matching convertible loans to innovative businesses will continue in its current form until the end of November.

Covid-19 Corporate Financing Facility

The Covid-19 Corporate Financing Facility, targeted at large businesses and operated by the Bank of England, will remain open until 22 March 2021. Where a company has exhausted all other options, and is of strategic importance to the UK, the government may also consider providing bespoke financial support.

TAXATION

Temporary VAT cut for hospitality and tourism

The reduced (5%) rate of VAT will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises, and to supplies of accommodation and admission to attractions across the UK until 31 March 2021 rather than ending on 12 January 2021.

VAT deferral

A ‘New Payment Scheme’ for VAT deferral will offer businesses that deferred VAT due in March to June 2020 the option to spread their payments over the financial year 2021/22 in 11 equal instalments. All businesses that took advantage of the VAT deferral are eligible and can use the scheme. However, they will need to opt in using a process HMRC will launch in “early 2021”.

Self-Assessment Tax Deferral – Enhanced Time to Pay

The self-employed and other taxpayers will be given more time to pay taxes due in January 2021, building on the self-assessment deferral provided for payments on account in July 2020.

Taxpayers with up to £30,000 of self-assessment liabilities due will be able to use HMRC’s online self-service Time to Pay facility to secure a plan to pay over an additional 12 months. The application for time to pay will be agreed automatically when the taxpayer applies using an online form. If the liability exceeds £30,000 or the taxpayer needs longer to pay, the telephone service will still be available to agree a bespoke plan.

This means that self-assessment liabilities originally due in July 2020, and any liability becoming due in January 2021, will not need to be paid in full until January 2022. Any self-assessment taxpayer not able to pay their tax bill on time, including those who cannot use the online service, can continue to use HMRC’s Time to Pay Self-Assessment helpline to agree a payment plan.

If you have any queries on the above information, please do not hesitate to call our office on 01226 298 298 and a member of a team will be able to provide advice and support.

HIGHLIGHTS

• A £1,000 Job Retention Bonus will be introduced when the Coronavirus Job Retention Scheme ends for employees who have been furloughed.
• A new Kickstart Scheme will cover employers’ costs for new six-month work placements for trainees aged 16-24.
• A £1,000 payment will be made to employers for each 16-24-year-old on work placement and training.
• Employers who hire new apprentices will receive payments of up to £2,000.
• There will be a temporary cut to Stamp Duty Land Tax on residential property, increasing the zero-rate band to £500,000 and saving purchasers up to £15,000.
• The rate of VAT will be cut temporarily from 20% to 5% for restaurant, food, accommodation and attractions businesses.
• An ‘Eat Out to Help Out’ Scheme will offer 50% meal discounts during August.

INTRODUCTION

The Chancellor, Rishi Sunak, has spent so much time in the spotlight that it seems hard to believe he has not yet been in the job for five months. Today’s Financial Statement was just the latest of a series of announcements by Mr Sunak since he presented his Spring Budget on 11 March, four weeks after entering 11 Downing Street. One way or another, all the announcements have been responses to the financial impact of the Covid-19 pandemic.

His latest statement was perhaps the most difficult, given the circumstances in which it was set:

• The government finances are in deep deficit. In only the first two months of the current financial year, the Treasury borrowed £103.7 billion, which was over six times as much as in the same period in 2019/20 and close to double the Budget forecast for the entire year. In May, for the first time since 1963, total government debt exceeded 100% of GDP the UK’s economic output for the whole year.

• The UK economy contracted by 2.2% in the first quarter of 2020, according to the Office for National Statistics (ONS). In April alone – the first full month of lockdown – the ONS estimates that there was a further 20% shrinkage in output.

• The Chancellor’s flagship employee furlough scheme, the Coronavirus Job Retention Scheme (CJRS), will start to be phased down in August. At that point, employers become responsible for the pension contributions and National Insurance Contributions (NICs) currently met by the Treasury. The CJRS, which has already been extended twice, is set to finish at the end of October. As of 5 July the scheme covered 9.4 million furloughed jobs provided by 1.1 million employers and had received claims totalling £27.4 billion.

• The constituent parts of the UK are each emerging from lockdown, a process that could lead to an increased infection rate and local flare ups, as has happened in many US states and parts of Europe. On the day before the Chancellor’s statement, the Organisation for Economic Development published a report saying the UK unemployment rate could reach 14.8% by the end of 2020 if there is a second wave.

The challenge for the Chancellor in his Summer Statement was to start the transition from the emergency employment support that has so far been the focus of his strategy. He presented his statement as a ‘Plan for Jobs’, composed of three elements promoting jobs:

1. Supporting

2. Protecting

3. Creating

The Chancellor placed a price tag on his measures of up to £30 billion. He also promised that in the Autumn Budget and Spending Review he would deal “with the challenges facing our public finances”.

SUPPORTING JOBS

The Chancellor announced a range of initiatives under the ‘Supporting Jobs’ heading, including:

Job Retention Bonus

The Chancellor made it clear that he intends to end the CJRS in October as planned. To encourage employers to support those people who have been furloughed, a Job Retention Bonus will be introduced.

The Job Retention Bonus will provide a one-off payment of £1,000 to UK employers for every previously furloughed employee who remains continuously employed through to the end of January 2021. Employees must earn more than £520 a month on average between the end of the CJRS and the end of January 2021. Payments will be made from February 2021. Further details about the scheme will be announced by the end of July.

Kickstart Scheme

The Kickstart Scheme, which only covers Great Britain, aims to provide “hundreds of thousands of high quality six-month work placements” for those aged 16-24, who are on Universal Credit and are considered to be at risk of long-term unemployment.

Government funding for each job will cover 100% of the relevant National Minimum Wage for 25 hours a week plus the associated employer NICs and employer minimum automatic enrolment contributions (a maximum of about £6,500).

There is to be no cap on the cost of the scheme.

Traineeships

Employers who provide work experience for 16-24-year-olds in work placements and training will receive a payment of £1,000 per trainee. Provision of traineeships and eligibility for them will be extended to those with Level 3 qualifications and below, to ensure that more young people have access to training.

Payments for employers who hire new apprentices
Employers in England will receive a new payment of £2,000 for each new apprentice they hire aged under 25, and a £1,500 payment for each new apprentice they hire aged 25 and over.

The scheme will run from 1 August 2020 to 31 January 2021. These payments will be made in addition to the existing £1,000 payment the Government already provides for new 16-18-year-old apprentices, and any of those aged under 25 with an Education, Health and Care Plan.

Other supporting jobs measures

Other initiatives under this heading include:

• £895 million to enhance work search support across Great Britain by doubling the number of work coaches in Jobcentre Plus before April 2021.
• An additional £150 million in the funding for the Flexible Support Fund in Great Britain, including increased capacity for the Rapid Response Service.
• £101 million for the 2020/21 academic year to give all 18-19-year olds in England the opportunity to study targeted high value Level 2 and 3 courses when there are not employment opportunities available to them.
• £95 million in 2020/21 to expand the scope of the Work and Health Programme in Great Britain to introduce additional voluntary support in the autumn for those on benefits who have been unemployed for more than three months.
• £40 million to fund private sector capacity to introduce a job finding support service in Great Britain in the autumn.
• £32 million new funding for the National Careers Service.

PROTECTING JOBS

The Protecting Jobs element focuses on the hospitality and leisure sector, which saw over 80% of firms temporarily cease trading in April and has 1.4 million furloughed workers. It is a sector of the economy that employs over two million people, according to the Chancellor, disproportionately drawn from the young, women and people from Black, Asian and minority ethnic communities.

Temporary VAT cut for food and non-alcoholic drinks

A reduced 5% rate of VAT will apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK. The temporary rate will apply from 15 July 2020 to 12 January 2021. Further guidance on the scope of this relief will be published by HMRC in the coming days.

Temporary VAT cut for accommodation and attractions

The 5% rate of VAT will also apply from 15 July 2020 to 12 January 2021 to supplies of accommodation and admission to attractions across the UK. HMRC will publish further guidance on the scope of this relief in the coming days.

Eat Out to Help Out

The ‘Eat Out to Help Out’ scheme will be introduced to encourage people to return to eating out. Every diner will be entitled to a 50% discount of up to £10 a head on their meal, at any participating restaurant, café, pub or other eligible food service establishment.

The discount can be used without limit throughout the UK on any eat-in meal (including on non-alcoholic drinks). It will be valid Monday to Wednesday during the month of August, and participating establishments will be fully reimbursed for the 50% discount.

CREATING JOBS

The job creation measures are primarily targeted on the housing and construction sector.

Stamp Duty Land Tax

Receipts of Stamp Duty Land Tax (SDLT – covering England and Northern Ireland) have fallen precipitously in the past few months, as the graph above shows. The slowdown in transactions has been accompanied by a stalling in prices – the latest data from Nationwide showed house prices falling in June 2020 for the first time in almost eight years. A temporary cut in SDLT on residential properties was widely trailed and duly arrived.

From 8 July 2020 to 31 March 2021, there will be no SDLT on the first £500,000 slice of property value, creating a maximum saving of £15,000. However, the 3% additional rate will still apply to additional properties.

The resulting revised SDLT table for residential property is shown below:

The rates of Land and Buildings Transaction Tax (LBTT) in Scotland and Land Transaction Tax (LTT) in Wales are set by the devolved administrations in those countries. In the past, they have tended to follow changes to SDLT with their own variations. At the time of writing, the devolved Governments had not made any announcements.

Green Homes Grant

A £2 billion Green Homes Grant will be introduced, providing at least £2 for every £1 up to £5,000 per household to homeowners and landlords who spend on making their residential properties more energy efficient. For those on the lowest incomes, the scheme will fully fund energy efficiency measures of up to £10,000 per household.

Other creating jobs measures

Other initiatives under this heading include:

• £5.6 billion of accelerated infrastructure investment, covering hospitals, schools, courts, prisons, town centre improvements and local road maintenance.
• A £1 billion investment over the next year in a Public Sector Decarbonisation Scheme that will offer grants to public sector bodies, including schools and hospitals, to fund both energy efficiency and low carbon heat upgrades.
• By boosting the Short-Term Home Building Fund, an additional £450 million in development finance will be made available to smaller firms that are unable to access private finance.
• £400 million will be allocated via the Brownfield Housing Fund to seven Mayoral Combined Authorities to bring forward land for development of homes in England.
• £100 million of new funding will be provided for researching and developing Direct Air Capture ­ a new clean technology that captures CO₂ from the air.
• A new Social Housing Decarbonisation Fund will be established to help social landlords improve the least energy-efficient social rented homes. It will start in 2020/21 with a £50 million demonstrator project.
• £40 million will be spent to improve the environmental sustainability of the courts and tribunals estate in England and Wales, investing in initiatives to reduce energy and water usage.
• Up to £40 million will be made available in a Green Jobs Challenge Fund for environmental charities and public authorities to create and protect 5,000 jobs in England. The jobs will involve improving the natural environment, including planting trees and creating green space for people and wildlife.
• £10 million of funding is to be made available immediately to the Automotive Transformation Fund for the first wave of innovative R&D projects to scale up manufacturing of the latest technology in batteries, motors, electronics and fuel cells.
• New legislation will be introduced in summer 2020 to make it easier to convert buildings for different uses, including housing, without the need for planning permission. In July 2020, the Government will launch a policy paper setting out its plan for comprehensive reforms of England’s planning system.

A recent report looking at who pays the most income tax reveals some interesting findings.

The Institute for Fiscal Studies (IFS) published a briefing note in early August with a detailed answer to the question of what it takes to enter the 1% club. Around 310,000 people make up this cohort, with some predictable and not so predictable traits:

• They have taxable income of at least £160,000 in 2014/15. The historic nature of the data reflects both HMRC’s systems and the fact that the 2015/16 numbers were distorted by the introduction of new dividend tax rules in the following year.
• Typically, they are male aged 45–54 based in London, with an additional £550,000 of income. To quote the IFS, the 1% club is “disproportionately male, middle-aged and London-based”.
• They live in 10% of the 650 parliamentary constituencies, which contain half of the top 1% population. In 2000/01, 78 constituencies were needed to reach the halfway mark.
• They have over a quarter of their income made up from partnership and dividends, as the pie chart shows. This reflects the fact that many are business owners.
• They manage fluctuating income levels. The top 1% is not a stable group, which may be some solace if you do not currently have the necessary membership credentials. The IFS found that roughly a quarter drop out each year and only half remain for five consecutive years. The corollary is that there is a much higher chance of being in the top 1% at some point in your life than in any given year. The IFS calculated that 3.4% of all people (and 5.5% of men) born in 1963 were in the top 1% at some time between 2000/01 and 2015/16.

However, being a member of the 1% taxpayers club also means accounting for 27% of all income tax collected by HMRC. So failing to qualify may reflect some careful and expert financial planning…

If you require help regarding your financial planning, please don’t hesitate to call our tax department on 01226 298 298.

Stock markets, as well as some family holidaymakers, experienced a rollercoaster August.

The traditional holiday month proved to be anything but quiet on the world’s investment markets. As the graph of the major UK and US stock market indices shows, there were plenty of sharp lurches, up as well as down.

Inevitably, the downward trends attracted more attention, particularly the fall in US share values on 13 August. “Dow drops 800 points” is a headline that newspaper editors find hard to resist. ‘Dow falls just over 3%’ would have been equally accurate, but 800 points sounds considerably more dramatic.

Several factors challenged the markets in August:

• Short-term interest rates look set to fall further in the US (where the first cut in ten years took effect at the start of the month). Elsewhere there is less scope to cut as rates are so low, but central banks are hinting at other measures, such as a return of quantitative easing.
• Long-term interest rates also continued to fall, often deeper into negative territory. In the second half of the month the German government sold a 30-year bond which paid no interest and guaranteed investors a loss of 0.11% a year, if they held the paper until 2049.Tumbling and negative yields are seen by some commentators as an indicator that a recession is looming.
• The trade war between the US and China reignited, with a new round of tariff-by-tweeting from President Trump. In response, the Chinese allowed their currency, the Renminbi, to weaken, with knock-on effects for its neighbours.
• The Brexit saga ratcheted up in the UK and Europe, as the new Prime Minister Boris Johnson adopted his ‘do or die’ stance to 31 October and announced a provocative prorogation of Parliament ahead of the deadline.

As with any rollercoaster ride, the experience can be both exhilarating and nauseating. It is by no means clear when this particular trip will end, but – again like the rollercoaster – it could be highly dangerous to jump out before the journey finishes.