Government spending review and latest update on COVID-19 support

Monday, November 30th, 2020

As the COVID-19 crisis continues, we feel it is vitally important as Wolverhampton’s leading accountants we keep our clients abreast of the ongoing support in place for businesses and the self-employed, as well as to analyse the key points from the Chancellor’s recent spending review.

Overview of Government spending review 

In his spending review on 25th November, Rishi Sunak said the “economic emergency” caused by COVID-19 has only just begun, as he warned the virus would mean lasting damage to growth and jobs.

Official forecasts now predict the biggest economic decline in 300 years. The UK economy is expected to shrink by 11.3% this year and not return to its pre-COVID size until the end of 2022. Government borrowing will rise to its highest level outside of wartime in order to deal with the economic impact.

The Office for Budget Responsibility expects the number of unemployed people to increase up to 2.6 million by the middle of next year. This means the unemployment rate will hit 7.5%, its highest level since the financial crisis in 2009.

Amongst other announcements made, the minimum wage – which has been rebranded as the National Living Wage – will increase by 2.2% – or 19p – to £8.91 an hour, with the rate extended to those aged 23 and over. Other rates were also increased. From April 2021, 16 and 17-year-olds will see their pay go up to £4.62 per hour, from £4.55.

The Chancellor also announced a £4.3bn package of support to help the jobless get back into work.

Spending review – potential impact

The size of the cost of COVID-19 is huge and the Government will need to find more money from spending cuts and taxes just to balance revenues on a day to day basis. It is fair to say that businesses and individuals can expect to see tax rises announced in the March 2021 Budget.

There is already speculation that the government could raise money from changes to Capital Gains Tax, pensions relief or self-employment taxes. This could mean that it would be beneficial to maximise your position in these areas in advance of the next Budget in March 2021 – please call us if you want to discuss a potential strategy. Such changes will not be sufficient to cover the COVID-19 costs so it is expected that there will be some corporation tax, income tax, VAT, or national insurance increases to come at some point.

The Government will need to decide when to stop the support to the recovering economy and when to start strengthening public finances by tax rises. Current uncertainty makes it difficult to know when this will be. 

Businesses should be concentrating on strengthening their cash flow management now ahead of the end of support and tax changes. The most important advice we can give our clients is to put aside time to plan ahead to look at maximising revenue and minimising or streamlining operating costs. We can help you prepare accurate forecasts based on a number of scenarios and do a “what if” exercise on your business if required.

Coronavirus Job Retention Scheme (CJRS) update 

The CJRS has been extended to 31‌‌‌ March 2021 for all parts of the UK and HMRC has updated its guidance. From 1‌‌‌ November the Government will pay 80% of employees’ usual wages for the hours not worked, up to a cap of £2,500 per month. The government will review the terms of the scheme in January.

Another key difference from the previous versions of CJRS is that there is no requirement that the employee was on the payroll at 19 March 2020 or has been previously furloughed. They do however need to be on the payroll and subject to an Real time Information (RTI) submission prior to midnight on 30 October 2020.

An employee’s reference pay for a CJRS claim will depend upon whether they were on the payroll and subject to an RTI submission for 2019/20 on or before 19 March 2020. Where that is the case, their reference pay will be that used under previous furlough claims. Where the employee has joined since that date or not subject to an RTI submission prior to 19 March, the reference pay will generally be that for the last pay period ending before 30 October. 

There are exceptions to these rules and complications for those working variable hours and with variable rates of pay. 

You must submit any CJRS claims for November no later than 14‌‌‌ ‌‌December. You can claim before, whilst or after you process your payroll as long as your claim is submitted by the deadline.

Remember to keep any records that support the amount of CJRS grant you claim, in case HMRC needs to check them. You can view, print, or download copies of your previously submitted claims by logging onto your CJRS service on GOV.UK.

Please feel free talk to us about making a claim, we have helped many clients through these troubled times, especially as the scheme has changed several times over the last six months.

Self-employment Income Support Scheme (SEISS) update 

HMRC has issued guidance on the third SEISS grant and specifically how trading conditions affect eligibility.

To be able to claim for the third grant, you must either:

You must also: 

You must also meet all other eligibility criteria to make a claim.

HMRC states that it expects SEISS claimants to make an honest assessment about whether they reasonably believe their businesses will have a significant reduction in profits.

Feel free talk to us before making a SEISS claim – we can work through your figures and make an accurate estimate of what you should expect.

See: https://www.gov.uk/guidance/how-your-trading-conditions-affect-your-eligibility-for-the-self-employment-income-support-scheme

Penalties for overclaimed CJRS, SEISS and “Eat Out to Help Out” grants

HMRC have announced that they will be imposing penalties of up to 100% of the amounts overclaimed on businesses so it is important to make sure that your claims are correct.

The penalties depend on whether or not the overclaim is the result of a deliberate error and whether or not the disclosure was prompted by HMRC. The penalty may be reduced where the taxpayer assists HMRC in correcting the error. 

Many overclaims may be the result of careless errors or a misinterpretation of the rules which have changed many times in the last nine months so we hope that HMRC will apply the rules with a light touch and focus on those that have abused these schemes.

We have heard that HMRC are writing to 4,000 catering establishments that they suspect may have overclaimed under the “Eat Out to Help Out” scheme that ran in August.  Traders are being asked to check their claims and respond within 60 days or face an HMRC compliance check.

If you need an independent check on what you have claimed, please contact us.

Paying VAT deferred due to Coronavirus

HMRC has issued further guidance on paying deferred VAT as follows:

If you deferred VAT between 20 March and 30 June 2020 and still have payments to make, you can:

• pay the deferred VAT in full on or before 31 March 2021

• opt into the VAT deferral new payment scheme when it launches in 2021

• contact HMRC if you need more help to pay

You cannot yet opt into the new deferral scheme. The online opt in process will be available in early 2021. You must opt in yourself. Your agent cannot do this for you.

Under the new deferral scheme, instead of paying the full amount by the end of March 2021, you can make from 2 to 11 smaller monthly instalments, interest free. All instalments must be paid by the end of March 2022. To be able to opt into the scheme you must still have deferred VAT to pay, be up to date with your VAT returns and be able to pay the deferred VAT by Direct Debit.

You will need to have a Government Gateway account set up to be able to opt into the scheme.

If you opt into the scheme, you can still have a ‘time to pay arrangement’ for other HMRC debts and outstanding tax.

See: https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19?utm_source=9431dd8a-ce55-43be-adff-aac5f169c75b&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate

Local Restrictions Support Grant and Shop Local scheme

Details of the grant programmes related to the impact of the Government’s National Lockdown measures and local restrictions are on the “Wolves in Business” portal. Eligibility criteria and an application link for the Local Restrictions Support Grant, and for the Additional Restrictions Grant can be found at

www.wolverhampton.gov.uk/businessgrants – if you are outside Wolverhampton it is worth checking on your local council website for similar support schemes in your area.

A ‘Shop Local’ scheme launched in Wolverhampton last week. The Shop Local campaign aims to support the city’s local shops and businesses throughout the lockdown and in the run up to Christmas by showcasing their details on a new website for free – supported by an extensive marketing campaign. The Shop Local scheme is an initiative being led by City of Wolverhampton Council and Wolverhampton and Bilston Business Improvement Districts. To get your details listed on the website please click here 

New Relight Business Programme to support small businesses in Wolverhampton

City of Wolverhampton Council has announced a new ‘Relight Business Programme’ to support up to 200 micro and small businesses in the city that have not traditionally engaged with business support organisations

It will provide financial management advice and digital guidance and is being run in conjunction with the Black Country Chamber of Commerce and Federation of Small Businesses.

Each participating business will receive at least £750 worth of professional support in the form of financial health checks, analysis of funding and cashflow, reviews of products and services, and ways to improve market awareness, with the aim to rapidly build their capacity to survive and grow in the COVID-19 hit economy. 

Membership of the Federation of Small Business or the Black Country Chamber of Commerce is also included as part of the programme.

The programme will go live early in the New Year with applications being invited from Monday, 30 November 2020. Full details, including eligibility criteria and an online application form will be posted at the Relight Business Programme tab on www.wolvesinbusiness.com

If you are outside Wolverhampton it is worth checking on your local council website to see if they are running similar schemes.

Working from home claims

With more of us working from home there is good news from HMRC that employees can now make a claim for tax relief to cover some of their costs while they are working from home.

The previous rule for employees was that there had to be a home working arrangement with their employer under which they were required to work from home on a regular basis to be paid £6 a week tax free (£4 a week up to 5 April 2020). This rule has now been relaxed because of COVID-19 so that such arrangements are not currently required, and employees can also claim tax relief directly from HMRC where their employer does not make the payments. 

£312 a year tax free is equivalent to £538 gross for a higher rate taxpayer. The payments are tax deductible for the employer and not liable to national insurance contributions.

Where the employer does not make the payments to the employee there is a new claims portal on the HMRC website so that the employee who is working from home can claim to deduct £312 from their employment income. That would generate a £124.80 tax refund for a higher rate taxpayer or £62.40 if basic rate.

There is a similar tax break for the self-employed which provides a deduction from profits of up to £26 a month.

Virtual Christmas parties and Christmas gifts for employees

HMRC are not going to be the Grinch this year and have recently announced that employers may arrange a “virtual” Christmas party this year and there will be no taxable benefit for employees provided that all staff are invited and the cost per head does not exceed the normal £150 limit. 

It may be worth keeping a virtual party as a modest affair and then have a bigger event when the Coronavirus pandemic is over as you are allowed more than one event a year within the £150 limit. 

It is also worth remembering that certain gifts to staff at Christmas are also tax free if structured correctly. Employers are allowed to provide their directors and employees with certain “trivial” benefits in kind tax free.

This exemption applies to small gifts to staff at Christmas, on their birthday, or other occasions and includes gifts of food, wine, or store vouchers.

There are, of course, a number of conditions that need to be satisfied to qualify for the exemption:

Keep informed and plan ahead

Whilst there may be light at the end of the tunnel with the COVID-19 crisis, we still have some way to go so we advise businesses and individuals to keep informed of support that is available and create plans for emerging from the crisis. It is also worth considering whether potential tax changes are going to affect you and if action is necessary before the next Budget in March 2021. 

As ever, the Copia Wealth & Tax team is here to help so call us now on 01902 783172 to arrange for a chat or to get a second opinion, or alternatively, just click HERE to contact us via the form on our website and one of our friendly experts will be in touch.

We very much look forward to hearing from you but in the meantime, please stay safe.