When the Chancellor announced his last Budget in March 2020, it was against a backdrop of significant Coronavirus-related economic uncertainty. Back then he committed to help UK businesses and individuals through a period of temporary disruption. However, at that time no one realised just how big and long-lasting the disruption would be.
Today we weren’t expecting big announcements on tax rises. However, it’s a relief that there were no nasty surprises in the Chancellor’s statement and that he remains committed to kickstarting the economy and supporting businesses and individuals through continued uncertain times.
Rishi Sunak confirmed there would be a budget and spending review in the autumn and that today’s measures were phase two of a three phase plan to secure the UK’s economic recovery from Coronavirus.
Today was a statement focused on jobs; job creation and job protection. With it came a package of measures designed to support businesses who bring employees back from furlough leave and who create new jobs. The Chancellor firmly closing the door on the Job Retention Scheme at the end of October 2020 will still be a difficult pill to swallow for some of the hardest hit sectors and will leave many business leaders with difficult decisions ahead of them.
Below we have provided a summary of the measures introduced today that are designed to:
- encourage job retention and creation and support employers
- support the housing market through Stamp Duty cuts
- provide a VAT reduction lifeline to the tourism and leisure sector
- incentivise consumers to return to bars and restaurants
1. Job creation and retention – measures to support employers
Today the Chancellor announced a range of measures aimed at creating jobs for younger people and retaining employees following furlough. These included:
Job Retention Bonus: This involves a payment to UK employers who bring employees back from furloughed leave and continue to employ them to 31 January 2021. The bonus will be £1,000 per employee and is a one-off payment, designed to encourage UK employers to retain their employees rather than facing redundancies. To qualify, the employee must be paid on average at least £520 per month between the end of the Job Retention Scheme on 31 October 2020 and the end of January 2021. The payments will be made from February 2021.
The expectation is that employers who have already brought employees back from furlough leave will also benefit from the Job Retention Bonus, meaning there is no disadvantage to businesses bringing staff back earlier than 31 October 2020. However, it also means that businesses who quickly furloughed staff at the beginning of lockdown, and then brought them back after the minimum three weeks as their businesses weathered the storm well, will also benefit, rather than the bonus being targeted at specifically hard-hit sectors. Specifically, many employees in hospitality and leisure are on zero-hour contracts and may not meet the £520 average monthly wage, meaning the employers would not qualify for the bonus – a double-blow for one of the hardest hit sectors.
It’s important for employees to note that this is a grant payable to the employer, and not a bonus payable to the employees returning to work.
It will be interesting to see if the payments are automatic or need to be applied for, and more detail will follow at the end of July.
Kickstart Scheme: This is a £2bn fund to create thousands of high quality six-month work placements for 16-24-year olds, who are receiving Universal Credit and are deemed to be at risk of long-term unemployment. Funding will be available for each job and will cover 100% of the relevant National minimum Wage for 25 hours a week, plus the associated employer National Insurance Contributions and automatic enrolment contributions.
It isn’t clear from today’s announcements who would be classed as “at risk of long-term unemployment”, but it’s possible that this could exclude university graduates and other highly qualified individuals, and be more targeted to the low-skilled unemployed.
Clearly the Government are hopeful that the six-month placements will lead to long-term employment and that this will truly result in job creation rather than a deferral of an unemployment. There was no time limit announced on the scheme, indicating it will be a first-come, first-served fund.
Trainee funding: The Government will provide additional funds for traineeships in England, to support high quality wok placements and training for 16-24-year olds. Employers providing trainees with work experience will receive £1,000 per trainee. A traineeship is an unpaid position for 16-24-year olds who have little or no work experience and are below Level 3 qualified. The traineeships last up to six months and are designed to equip the trainee with the experience they need for an apprenticeship.
With funding being provided by the Government to encourage employers to provide more traineeships, we will hopefully also see a future increase in the number of apprentices.
Apprenticeships: The Government are introducing a new payment of £2,000 to employers in England for each new apprentice they hire under the age of 25, and £1,500 for each new apprentice over the age of 25, hired between 1 August 2020 and 31 January 2021. This payment is in addition to the existing £1,000 payment the Government already provides for new 16-18-year-old apprentices.
Early indications are that all payments made to employers in connection with the above funds will be taxable payments, as was the case with the Coronavirus Job Retention Scheme grants.
2. Supporting the housing market through Stamp Duty cuts
To support the housing market, Stamp Duty has been reduced to zero for purchases of dwellings up to £500,000 with immediate effect until 31 March 2021. Purchases of ‘additional’ dwellings by individuals and purchases of dwellings by companies will continue to suffer Stamp Duty at 3% surcharge up to £500,000.
The maximum saving is £15,000 per dwelling purchase. This applies where the sale contract is ‘substantially performed’ or completed before 1 April 2021. It does not apply to purchases where the sale contract was substantially performed or completed before 8 July 2020. The 0% rate band for rental leases of dwellings has also increased to £500,000, though it is rare for rental leases of dwellings to suffer the tax.
The measures are designed to stimulate the stalled property market and are likely to lead to a spike in property completions in March 2021, likely to be followed by very low Stamp Duty Land Tax receipts in April 2021.
3. Provide a VAT reduction lifeline to the tourism and leisure sector
In an attempt to stimulate the tourism and leisure sector, the Chancellor today announced a cut in VAT from 20% to 5% from 15 July 2020 to 12 January 2021.
The reduced rate of VAT will apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK. This temporary VAT cut will apply between 15 July 2020 to 12 January 2021.
Whilst the indication from the Chancellor’s announcement appears to be that the reduction in VAT will encourage more individual consumers back to the restaurants and bars, it is unclear whether the consumer or the business will be the beneficiary of the cut. It would rely on the businesses to pass on the cost reduction to the consumers, and whilst saving 45p on a cup of coffee is unlikely to have a huge impact on an individual, for a business selling hundreds of cups of coffee the extra pennies could add up to pounds and help plug the losses made during lockdown.
The temporary VAT cut will also apply to hotels, guest houses and similar accommodation as well as admission to attractions such as cinemas, theatres, zoos and theme parks.
Further guidance on the scope of this VAT cut will be published by HM Revenue & Customs (HMRC) in the coming days.
4. Incentivise consumers to return to bars and restaurants
The final announcement made by the Chancellor, in a shock move never seen in the UK before, was his introduction of his “Eat Out to Help Out” scheme. This is clearly targeted at encouraging consumers back to the bars and restaurants. This scheme will entitle every diner to a 50% discount on their meal, up to £10 per head (including children), at any participating restaurant, café, pub or food service establishment. The participating establishments will be reimbursed fully for the discount applied.
The discount can be used an unlimited amount of times, but it is only available Monday to Wednesday during August. It applies to any eat-in meal and includes non-alcoholic drinks.
This is a smart move by the Chancellor who will be hoping that at least some of the people taking advantage of the scheme will indulge in alcoholic drinks to accompany their meal, ensuring some return to the Chancellor’s ‘piggy bank’ from the duty on alcohol sales.
Qualifying Business will need to register to reclaim the value of the discount.
Would you like to know more?
If you would like to discuss the above, or have any questions, please get in touch with your usual Blick Rothenberg contact or one of the Partners to the right.
You can also download the 2020/21 edition of TaxFax, our pocket-sized booklet which outlines key tax information, including any changes following today’s announcement.