Posted: 02 Oct, 2020
On 25th September Chancellor Rishi Sunak delivered his Winter Economy Plan which, primarily, seeks to address the issue of jobs and with the furlough scheme ending on 31st October the Plan’s six-month “Job Support Scheme” was welcomed by businesses and employees.
The Job Support Scheme, to begin on 1st November, will see the government step in to help subsidise jobs where staff are working reduced hours. Employees will need to work at least a third of their usual hours to qualify for the support and employers will pay the wages of the actual hours worked. The government and the employer will then each pay a third of the wage bill for the hours not worked with the final third foregone.
The scheme is only designed to support viable jobs that have been hit by a temporary lack of demand, and won’t support those jobs that won’t be there once we emerge from the crisis. So while the scheme may help to stave off some of the planned redundancies due to the furlough scheme ending, it won’t save them all. Those business that have been hardest hit will still have to make redundancies.
The Chancellor’s Plan also set out some extra support for the hospitality and tourism sectors with the 20% to 5% VAT cut extended until the end of March next year. Flexibility on VAT payments has also been extended which should help with cashflow and continue to give businesses much needed breathing space. The New VAT Payment Scheme also gives them the option to defer VAT in smaller instalments so that rather than paying a lump sum in full at the end of March they can make 11 smaller interest-free monthly payments during the 2021-22 financial year.
Self-assessment taxpayers will benefit from an additional 12-month extension from HMRC on the “Time to Pay” self-service facility and those that are self-employed will benefit from an extension of the Self Employment Income Support Grant.
And finally, the Plan confirmed that the various government loan schemes will be extended until the end of November and both the Bounce Back and Coronavirus Business Interruption loans have had their terms extended from six years to ten. In the case of BBLS loans, these are automatically extended for repayment over nine years while for CBILS loans, any extension needs approval by the lender. There will also be a new loans scheme from January.
Will the Winter Economy Plan save UK businesses?
While the measures introduced in the Plan have been welcomed by many, there are also concerns that it doesn’t go far enough and that many jobs will be lost, and businesses fail. Mr Sunak himself said “I cannot save every business, I cannot save every job”.
For jobs to be saved, business owners have the difficult decision of deciding if the role is sufficiently viable in the long term to justify retaining the job. Given the current uncertainty, this is a difficult decision and has a financial implication now that businesses must underwrite some of the costs of continuing employment.
Some businesses, notably in the hospitality, aviation and cultural sectors, don’t see the measures introduced in the Plan as much of a saviour and have expressed disappointment that the measures don’t include targeted support for those industries which have been disproportionately affected.
And unfortunately, they’re right to be concerned. With social distancing and the new 10pm curfew measures for pubs and restaurants, many hospitality businesses won’t be able to survive, even with limited wage support from the government, because they simple can’t cover their costs. Even worse affected, theatres are facing decimation having been unable to sell tickets and the sector feels that their needs have been severely overlooked. While many have benefitted from the Culture Recovery Fund that was introduced in July, businesses in the sector had been hoping for more support in the Chancellor’s Plan as they struggle with day-to-day survival.
Commenting on the Chancellor’s Plan, TMA Director and incoming TMA President, Paul Davies, said:
“It is good to see the government providing further support for UK business though the ever-increasing mountain of debt will surely become a problem at some point. There are a number of helpful announcements across all sectors but is this just pushing the problem down the road? Further support for the hard-hit hospitality sector is definitely required with the 5% VAT scheme extended and the Job Retention Scheme, although the 10pm curfew and the ever-increasing local lockdowns will surely continue to hit this sector for a longer term.
Businesses should be seeking advice in respect of their Director responsibilities and considering restructuring options which may be available to them. As always, we would recommend seeking professional advice as early as possible.”
It is clear that not every business will be saved by the Winter Economy Plan. Some that are no longer viable may fail. Some that have been hardest hit may fail. Some, however, will seek advice, will innovate, and will prosper in another form. Restructuring isn’t always an option but by seeking professional advice as early as possible, failure doesn’t have to be a foregone conclusion.
TMA UK is part of TMA, a global organisation that represents the interests of turnaround professionals as its members who have the skills needed to assist in these unprecedented times. If you need assistance, please contact our helpline on 0844 804 0116
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