The UK’s furlough scheme is winding down. But with local lockdowns and new cases of COVID-19 in a state of escalation, Sept 24th was the chosen apt time for Chancellor Rishi Sunak to step to the podium once again.

The reason? The announcement of his ‘Winter Economy Plan’.

Not intended to be a direct extension of his furlough scheme (which is still planned to finish on the 31 October 2020), the replacement draws more inspiration from the German support model called The Kurzarbait Approach.

Under their system, employers cut workers hours and the federal government the ‘Bundesregierung’ pays them a portion of the income they lose. There scheme was adjusted to react to the pandemic so that it will run for 21 months paying back up to 80% in loss of earnings.

The UK’s plan shares the similarities with the German counterpart in that it will see the government help to pay the wages of people returning to work on a part time basis.

The Scheme itself

The system is designed to encourage companies to retain workers in viable jobs, while ensuring others are not kept in positions that only exist because of the furlough scheme.

The new scheme is set to run from the end of the current furlough scheme to the 30th April 2021. It is seen to be less generous but far more flexible than the UK’s original furlough scheme. Essentially it encourages employers to provide staff with as many hours as they can or need to.

To fall within eligibly for the scheme the employee must work a third of their regular hours and be paid at their usual rate.

The government will then step in for the remaining hours not worked, up to a third and the employer with take over the other third. The state’s contribution will be capped at £697.92 a month.

What this means is that an employee working 33% of their normal working hours will be paid 77% of their salary.

This new system will be open to employers regardless of whether they have already used the furlough scheme if they run a small to medium sized businesses. Large businesses will only be eligible if they can demonstrate that their turnover has been reduced because of the virus.

SEISS Grant Extension

The Self-Employment Income Support Scheme (SEISS), will now remain in place until the 30th April 2021 the same and on similar terms as the new support system. It will be available to the self-employed who are currently eligible for SEISS and continuing to actively trade.

Sunak stated that it would support viable traders who are facing reduced demand due to COVID-19.

This initiative will come in two forms:

More Time

Any of the 11.7 million of self-assessed income taxpayers who need extra help can also now extend their outstanding tax bill over 12 months from January 2021.

The Government has granted more time to pay taxes deferred from July 2020 and those due in January 2021, building on the payments on account deferral in July 2020.

Taxpayers with up to £30,000 in self-assessment liabilities due in January 2021 will be able to use HMRC’s time-to-pay facility which offers an extension of any additional 12 months.

In practice, those who deferred their payments on account in July 2020 will not need to settle their bill in full until on or before 31 January 2022.

Loan Extensions

The Chancellor also confirmed that applications for four existing business loan schemes have been extended until 20th November 2020:

The chancellor also increased repayment of BBLs and CBILs by offering to extend the repayment period from six to ten years decreasing dramatically the repayments for the around 1.6 million UK businesses.

In total more than £53 billion has been provided through these two loan schemes.

Hospitality & Tourism VAT Rate

The VAT that was reduced from 20% to 5% for businesses operating in the tourism and hospitality industries has also been extended. Originally with an end date of 12th January 2021 is now set to finish on 31st March 2021. This measure also applies to the organizations that make and supply hospitality, hotel and holiday accommodation.

Splitting deferred VAT Bills

Businesses that deferred their VAT payments between 20 March and 30 June 2020 will no longer have to pay a lump sum on or before 31 March 2021. Instead, the Government is offering the option to split this repayment into smaller, interest-free payments over the course of 11 months.

New restrictions means more redundancies?

With Boris Johnson announcing that pubs, bars and restaurants are to close at 10pm, and with ever more likely restrictions and measures to be taken throughout October the possibility of economic stagnation similar to March and April is a real concern. There are also fears of a growing wave of redundancies as the furlough scheme winds down – some models predicting that 33% of private-sector firms plan to reduce their workforce without additional government support (figures from CIPD).

Who foots the bill?

As of August 2020, the furlough scheme has totaled £36 billion, while SEISS has added another £7.5 billion approx.

The total impact of COVID-19 has left the UK is facing a £320 billion deficit already. The Chancellor’s new measures are set to increase this figure further while attempting to stem the economic fallout of the pandemic.

With Sunak postponing his Autumn Budget until the spring for the second consecutive year, it is a stark reality that at some point taxes will have to rise for all of us. The treasury are quoted as saying ‘Now is not the right time to outline long-term plans – people want us focused on the here and now’