The new Winter Economy Plan – Summary of Measures

The Chancellor, Rishi Sunak, has today delivered a statement to the House of Commons outlining plans to help protect jobs across the UK whilst the country faces a resurgence of coronavirus and a winter of uncertainty. The Chancellor was facing mounting pressure to reveal future changes as many of the schemes and reliefs previously announced are coming to an end including the furlough scheme at the end of October. 

It has also been confirmed that the Budget that was expected to be delivered in the autumn will now take place next year. The measures announced today are more clearly focused on keeping the economy ticking over during the coming weeks and months.

The main focus of the Chancellor’s announcements is a new Job Support Scheme and an extension to the Self Employment Income Support Scheme as well as additional flexibilities for businesses who have borrowed money as a result of the pandemic.

Details of these announcements follow:

Job Support Scheme

  • A new 6-month scheme starting from 1 November 2020. 
  • This scheme has been designed to support viable jobs and employees must work at least one-third of their hours, paid as normal, in order to qualify for the scheme. The government and employer will then each cover one-third of any remaining hours the employee is not working. 
  • Employees will therefore forego one-third of their pay for the hours that they have not been working. This means that employees working the minimum one-third of their hours will still receive at least 77% of their pay. 
  • The level of the grant will be calculated based on an employee’s usual salary but subject to a cap. 
  • The Chancellor said that the scheme will be open to all small and medium-sized businesses, but larger businesses will only qualify when their turnover has fallen as a result of the pandemic. 
  • You can still use this scheme even if you have not previously participated in the Coronavirus Job Retention Scheme. 
  • The previously announced Job Retention Bonus, allowing qualifying businesses to claim a £1,000 for each CJRS participating employee, will remain. Employers can claim both the Job Retention Bonus and funding through the Job Support Scheme. 

Self-Employment Income Support Scheme extension

  • The Chancellor announced additional help for the self-employed based on similar terms and conditions as the new Jobs Support Scheme. 
  • The extended scheme will apply for 6 months from 1 November 2020 with an initial taxable grant made available to those who continue to trade and are currently eligible for SEISS. 
  • The initial lump sum will cover three months of profits from 1 November 2020 calculated as 20% of average monthly profits, up to a total of £1,875. 
  • An additional second grant will be available from 1 February 2021 to 30 April 2021, but the level of this second grant amount is subject to review. 

Loan deadlines extended

  • Businesses that have taken out a Bounce Back Loan will be able to benefit from a new Pay As You Grow flexible repayment system. 
  • This will include an extension in the loan term from six to ten years. There will also be new options for interest-only repayments for up to six months as well as payment holidays. 
  • The Coronavirus Business Interruption Loans will also have their Government guarantee extended to ten years. 
  • The deadline for applying for all the Government’s coronavirus loan schemes will be standardised and pushed back until 30 November 2020. 
  • A new successor loan guarantee programme is also expected to be introduced early next year. 

New VAT Payment Scheme

  • Businesses had the option to defer the payment of any VAT liabilities due between 20 March 2020 and 30 June 2020. 
  • The deferred payment was due to be paid in full to HMRC by 31 March 2021. 
  • The Chancellor has now confirmed that businesses will instead be able to make 11 smaller interest-free payments during the 2021-22 financial year.

Self-Assessment payment deadlines

  • Taxpayers that were due to make their second payment on account for the 2019-20 tax year had the option to have the payment due date deferred until 31 January 2021. 
  • It will now be possible to benefit from a separate additional 12-month extension from HMRC on the “Time to Pay” self-service facility for this payment and also for payments due in January 2021 extending the deadline until January 2022. 

VAT reduction for hospitality and tourism sector

  • The VAT reduction that was announced as part of the Summer Economic update was scheduled to end on 12th January 2021. 
  • The end date for the VAT cut has now been extended until 31 March 2021 to give the affected sectors more time to adjust to the difficult trading conditions. This means that VAT charged on food, accommodation and attractions (such as eat-in or takeaway food in restaurants, cafes and pubs, cinemas, theme parks and zoos) will see VAT reduced from 20% to 5% until the end of March 2021. 

The new incentives announced today should be welcomed as the government continues to try and cope with this unprecedented pandemic. Managing the economic ramifications are causing great difficulties for many people and businesses across the country. These steps, at least, give affected businesses and individuals a degree of certainty as to the level of government assistance available to them throughout the coming months. 

As more details emerge on the various schemes announced today we will update you further.

When the cash basis is not available to a property business

The cash basis scheme helps landlords, sole traders and other unincorporated businesses to benefit from a simpler way of managing their financial affairs. The scheme is not open to limited companies and limited liability partnerships. The entry threshold for the cash basis scheme is £150,000 and qualifying businesses can stay in the scheme until their business turnover reaches £300,000. 

Since the 2017-18 tax year, it has been the default basis for most property businesses that are run by individuals or partnerships with income for the tax year of £150,000 or less. A landlord can elect to opt out of the scheme in which case they can continue to use generally accepted accounting practice (GAAP) to calculate their taxable profits. 

HMRC’s property income manual lists the following list of circumstances when the cash basis is not available to a property business. 

  • A: The property business is run by a company, limited liability partnership (LLP), trustees or a corporate firm (a partnership with at least one non-individual member).
  • B: Receipts that would be brought into account under the cash basis for the tax year exceed £150,000. This amount must be proportionally reduced if the property business is only carried out for part of the tax year.
  • C: If the property business is being carried on jointly with a spouse or civil partner, the same basis must be used by both individuals, unless they make a declaration under S837/ITA 2007 that they are beneficially entitled to the income in unequal shares.
  • D: Business premises renovation allowance has been claimed, and a balancing event in the tax year gives rise to a balancing adjustment.
  • E: An election is made to use GAAP because the person believes that traditional accounting is more appropriate. The election must be made within one year of the filing date for that tax year.

Definition of a potentially exempt transfer

The majority of gifts made during a person's life are not subject to tax at the time of the gift. These lifetime transfers are known as 'potentially exempt transfers' or 'PETs'. These gifts or transfers achieve their potential of becoming exempt from Inheritance Tax if the taxpayer survives for more than seven years after making the gift. There is a tapered relief available if the donor dies between three and seven years after the gift is made.

The effective rates of tax on the excess over the nil rate band for PETs is:

  • 0 to 3 years before death 40%
  • 3 to 4 years before death 32%
  • 4 to 5 years before death 24%
  • 5 to 6 years before death 16%
  • 6 to 7 years before death 8%

HMRC’s internal Inheritance Tax manual states that subject to certain exceptions, a PET is a lifetime transfer of value that satisfies three conditions. They are that:

  • the transfer is by an individual on or after 18 March 1986
  • it would be a chargeable transfer apart from IHTA84/S3A (or, if only partly chargeable, is a PET to the extent that it would be chargeable), and
  • it is a gift to another individual or to a specified trust.

Companies in partnership

A Partnership is a relatively simple way for two or more legal persons to set up and run a business together with a view to profit. Partnerships can take many forms. Legal persons other than individuals can also be partners in a partnership. For example, companies may form partnerships with other legal persons including individuals, other companies and trustees.  For tax purposes, a ‘company partnership’ is a partnership in which at least one member is a company. 

A company in a partnership is treated like any other partner except that they have additional tax and reporting obligations. This means that each company member liable to UK Corporation Tax (CT) is required to include in its CTSA return the share of profits it derives from the partnership.

In partnership return context the term ‘CT partnership’ is used to describe a partnership all of whose members are within the charge to CT.

The CT charged on a company partner in respect of its share of partnership profits is not a partnership debt.  None of the other partners are therefore liable for that tax.

Removing your home address from the public register

Company directors and other eligible people such as company secretaries, people with significant control (PSC) and LLP members can apply to remove their personal addresses from the UK’s official company register on Companies House. 

Company directors and others are still required to provide an alternative correspondence address if they are appointed to a live company. If they are no longer appointed to a company, then an alternative address is not required and only the first half of their postcode will be made available to the public. The option to remove your home address from the public register is not available if the home address is the same as the company’s registered office address. 

There is a charge of £32 per document where a director wants to suppress their home address. The fee was reduced from £55 to £32 from 1 June 2020 following the introduction of new software that has significantly reduced the processing time for these applications.

During the COVID-19 outbreak, the fee should be paid online before the application is submitted. The quickest way to then proceed is to email a copy of the SR01 application together with the payment reference to Companies House. This will allow Companies House to process the application without delay. Applicants can still send a completed SR01 application by post, but it is taking Companies House much longer than usual to process paper applications due to coronavirus.

Claiming tax relief for work related expenses

Employees who need to buy equipment to use as part of their employment may be able to claim tax relief based on the cost of the equipment acquired. In most cases you can claim tax relief on the full cost of this type of equipment as it usually qualifies for a type of Capital Allowance called annual investment allowance. Any tax relief would be reduced if the employer provides a contribution towards buying the item.

The way to claim tax relief depends on the amount you’re claiming. HMRC provides the following information on making a claim:

Claims up to £2,500

You should make your claim:

  • using a Self-Assessment tax return if you already fill one in
  • online or by printing and posting form P87 if you don’t already fill in a tax return 
  • by phone if you’ve had a successful claim in a previous year and your expenses are less than £1,000 (or £2,500 for professional fees and subscriptions)

Claims over £2,500

  • You can only claim using a Self-Assessment tax return. You will need to register if you don’t already complete a return.

There are different rules for employees who use their own uniforms, work clothing and tools for work. It is possible to claim for the cost of repairing or replacing small tools you need to do your job (for example, scissors or an electric drill), or cleaning, repairing or replacing specialist clothing (for example, a uniform or safety boots). A claim for valid purchases can be made against receipts or as a 'flat rate deduction'. However, an employee cannot claim relief on the initial cost of buying small tools or clothing for work.

Changes to duty free shopping

The government has published the new rules for duty free and tax free shopping that will come into effect from 1 January 2021. The changes are wide ranging.

For anyone who smokes or drinks there will be no duty charged on alcohol or tobacco products from January 2021. This will apply irrespective of whether you are travelling to an EU or non-EU country. The new rules will apply to British ports, airports, international rail stations and sales on ships, trains and planes. 

There will also be new increased personal limits on what you can bring home. This means that passengers coming to Britain will be able to bring back, for example, three crates of beer, two case of still wine and one case of sparkling wine or 4 litres of spirits to GB without paying UK duties.

The government has also announced the ending of all tax free sales from January 2021. This will apply to relevant sales of tax-free transactions in airports of goods in sectors such as: electronics, fashion and beauty products and will apply to passengers travelling to non-EU countries.

It has also been announced that the VAT Retail Export Scheme is to be scrapped from 1 January 2021. This means that VAT refunds for overseas visitors in British shops will be removed. The only exception will be when an item is shipped directly from the seller to the home address of the foreign customer.

The changes will apply in England, Wales and Scotland. The rules in Northern Ireland are still under discussion.

Venues required to record contact details

It has become a requirement for premises and venues across England to have a system in place to record contact details of their customers, visitors and staff. This move is intended to help trace people should a venue be linked to a coronavirus outbreak. 

The government has said that further guidance and, where necessary, regulations will be published specifying the settings affected by the changes. The scope will cover the hospitality industry, such as pubs, bars, restaurants and cafes, as well as close contact services and other tourism and leisure venues.

These businesses and organisations had been advised to collect and share data, with many effectively doing so. However, the data collection programme has now been formally mandated since 18 September 2020 and will support the NHS Test and Trace service.

The main requirements for collecting contact details are as follows:

•    Details to be stored for 21 days and shared with NHS Test and Trace if required
•    Contact details required include name, contact number, date of visit, arrival, and departure time (if possible)
•    Fixed penalties for organisations that do not comply
•    Venues will also be in breach of the law if they take individual bookings of more than six people
•    Customers who do not provide details may be refused entry.
•    All collected data must comply with GDPR and should not be kept for longer than necessary.

Further details are expected to be published shortly and clarified in future regulations.

Where is the silver lining?

It is really difficult to maintain a sense of equilibrium and optimism in these difficult times. Even if you can embrace the notion that everything changes, and they do, the present restrictions on our daily business and home lives seem all consuming and never ending.

Where is the silver lining, the light at the end of the tunnel?

An effective vaccine would help as would additional treatments for those who actually catch coronavirus. But many businesses, indeed whole sectors, are now on their knees as the effects of lockdown and layoffs start to bite.

Which is why standing back to take an objective view of your affairs is so important. Very often it is impossible to see yourself objectively, caught as we are in the concerns of manging each day. If you have a business and are unsure how to react to present challenges then the investment in an independent assessment of your business or personal finances could pay dividends.

And don’t wait until circumstances – your bank, creditors or customers – dictate how you need to react. Take back control and start planning.

Initially, you will need to assess your present situation and then steer activity based on these restrictions in order to preserve your hard-won assets.

We can help. Call now so we can start to consider your options and create a possibility for that journey to reach the light at the end of the tunnel.

Mothballing your business assets

Mothballing as used in a business sense is usually defined as to stop using a piece of equipment or process, and then storing and preserving mothballed assets for later use.

Many business owners are now faced with marshalling their resources in this way.

There is a temptation to sell off assets that are under-utilised due to the present COVID disruption. If assets are readily converted into cash this sell-off process could make a welcome contribution to cashflow.

Mothballing your entire business is another matter…

If you could stop trading and place all of your business assets – including your work-force – into hibernation, then perhaps you could close your doors and wait-out the coronavirus epidemic.

Unfortunately, most businesses have significant costs that cannot be cancelled. These fixed costs, for example rent, rates and insurances, will need to be paid even if you are closed for business.
But, for those businesses that have limited fixed costs – say businesses run from home – mothballing may be a way to protect your business from extinction while you find other paid-for work to tide you over?

In this way you could reawaken your “sleeping beauty” business when we can once again contemplate business life without the concerns of lock-down, masks and social distancing.