Chancellor Rishi Sunak today unveiled the government’s plan to protect jobs and support businesses over the coming months, with the updates for the self-employed also featuring.
Whilst there is still some confusion surrounding just how it will affect the self-employed in the long term, several points were raised relating to contractors and freelancers. Here’s an overview of some of the key takeaways:
- Income tax has been deferred, with the Chancellor announcing that those with a tax debt of up to £30,000 will be able to set up a payment plan over 12 months to January 2022. This will help with immediate financial problems, but the self-employed are expected to find the money eventually.
- The Self Employment Income Support Scheme Grant (SEISS) will be less generous than it had been previously. It will now cover 20% of average monthly profits (compared to 80% previously) up to a total of £1,875 between November and January. Further details will be announced for the three months that follow.
- ‘Pay as you grow’ scheme was announced for businesses, allowing them to extend their bounce back loans from six to 10 years, therefore reducing their payments. This is good news for both full time and self-employed staff.
Speaking of the announcement, Matthew Langhan, Accounting Team Leader at Gorilla Accounting, said: “As part of the announcements made by Rishi Sunak today, the Chancellor confirmed the extension of the SEISS, which is a welcome step in continuing to help support the self-employed through this difficult period, but may not go far enough for those worst hit by the pandemic.
“Further payment deferrals have been granted for the previous VAT liabilities that were deferred between the 20th March and the 30th June, giving small businesses the option to spread any amounts due over an additional 11 months and an option to pay any self-assessment tax liabilities over an additional 12 months, both interest-free, which could benefit up to half a million small businesses.”
Away from the self-employed, Rishi Sunak also announced there will be a replacement for the furlough scheme at the end of October. The Chancellor announced a new ‘jobs support scheme’ which will subside the wages of people in work. The new scheme will run for 6 months, starting in November; here’s how it will work:
- Businesses will have the option of keeping employees on shorter hours, rather than making them redundant
- Employees must work at least a third of their usual hours – this will be paid for by the employer as usual
- For the time they are not working, the government will cover a third of their usual pay, with their employer making up a further third
- This means that in total, employees will receive 77% of their usual pay each month
- This means that the government is dropping its contribution from 80% to 22% of employee’s wages at the end of October
All small and medium-sized businesses are eligible, with larger businesses required to show how their turnover has fallen during the crisis if they apply. Businesses that had not previously used the furlough scheme will also be eligible to use the scheme too.
Referring to the new Jobs Support Scheme, Matthew Langhan said: “The announcement of the new Jobs Support Scheme, which is designed to replace the existing Jobs Retentions Scheme, is unlikely to help those individuals working through their own PSC’s, who have found themselves out of work since the crisis began, due to the nature of the scheme requiring them to work at least a third of their usual hours, to be eligible to claim.
“Although we would have liked the Chancellor to go further in his support for the self-employed, we welcome the provisions that have been made”
This is a developing situation; stay tuned to Gorilla Accounting channels for further updates on how the self-employed are impacted by the decisions made.
Summary Of The Changes
Reduced Hospitality and Tourism VAT: Extended until 31st March 2021
On 8th July 2020, the government made an announcement allowing VAT registered businesses to apply a temporary 5% reduced rate of VAT within the hospitality and tourism sector, applying to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises, supplies of accommodation and admission to attractions across the UK.
The reduced rate has been applicable since 15th July 2020 and was scheduled to 12th January 2021. it has been confirmed that this is to remain until 31st March 2021.
VAT Deferral – “New Payment Scheme”
In the initial government response to the COVID-19 pandemic, an option to defer VAT payments due between 20th March 2020 and 30th June 2020 was available for UK VAT-registered businesses. Any payments deferred are due to be paid by 31st March 2020.
The government will give businesses which deferred VAT due in March to June 2020 the option to spread their payments. Rather than paying in full at the end of March 2021, businesses will be able to choose to make 11 equal instalments over the financial year 2021-2022.
Businesses will need to opt in to the “New Payment Scheme”, but all are eligible. HMRC will put in place an opt-in process in “early 2021”.
Job Support Scheme
The government will be introducing a new Job Support Scheme from 1 November 2020, to replace the current furlough scheme. The scheme will run for six months from 1 November 2020 and is open to all employers with a UK bank account and a UK PAYE scheme.
Employees must work at least a third of their normal hours and be paid for that work, as normal, by their employer.
For every hour not worked the employer and the government will each pay one third of the employee’s usual pay, and the government contribution will be capped at £697.92 per month. The employer will be reimbursed in arrears for the government contribution.
Example:
If an employee works reduced hours, the employer will pay for those hours. And in addition, the employer and government pay one-third of the lost pay each (up to the cap).
For an employee on £2,000 a month working half their hours, they’d get £1,000 normal pay plus £333 extra from their employer and £333 from the government.
Criteria:
- Anyone who as of yesterday (23rd September 2020) is employed is eligible;
- Employee must work at least 33% of their regular hours & be paid for that work, as normal;
- All Small and Medium-Sized Enterprises (SMEs) will be eligible;
- Large businesses will be required to demonstrate that their business has been adversely affected by COVID-19;
- Businesses will not be able to issue redundancy notices to employees on the Job Support Scheme – and there will be restrictions on capital distributions to shareholders.
The employer can also claim the job retention bonus, if they meet the criteria to do so.
Extension to government backed finance schemes
The government is extending four temporary loan schemes, to 30 November 2020 for new applications. The schemes affected are:
- Bounce Back Loan Scheme;
- Coronavirus Business Interruption Loan Scheme;
- Coronavirus Large Business Interruption Loan Scheme;
- Future Fund.
Details on each of the schemes can be found, along with details of additional business support, at https://www.gov.uk/coronavirus/business-support
Bounce Back Loan Changes
The government will give all businesses that borrowed under the BBLS 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, or to pause their repayments entirely for up to six months.
The option to make interest only payments can be utilised three times, however the option to pause repayments entirely is an option that can only be used once and only after six payments have already been made.
Self-Employed Grant Extension
The grant will be limited to self-employed individuals who are currently eligible for the SEISS and are actively continuing to trade but are facing reduced demand due to COVID-19. The scheme will last for 6 months, from November 2020 to April 2021.
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 3 months’ worth of profits, and capped at £1,875 in total. The second grant will cover a three-month period from the start of February until the end of April. The government will review the level of the second grant and set this in due course.
Self-Assessment Taxpayers – Enhanced Time to Pay
The government will give the self-employed and other taxpayers more time to pay taxes due in January 2021.
Taxpayers with up to £30,000 of Self-Assessment liabilities due will be able to use HMRC’s self-service Time to Pay facility to secure a plan to pay over an additional 12 months.
This follows on from the self-assessment deferral applicable to payment’s on account that were originally due to be paid by 31st July 2020. Meaning that Self-Assessment liabilities originally due in July 2020 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.
