UK’s economic response to COVID-19 pandemic takes shape
The details of the UK’s response to the economic fallout of the coronavirus pandemic continue to emerge, after Chancellor of the Exchequer Rishi Sunak announced “unprecedented” measures Friday.
“We’re paying people’s wages up to 80% so someone can be furloughed rather than laid off to protect their jobs,” Sunak said. Employers will be able to obtain a grant to “to cover most of the wages of people who are not working but are furloughed and kept on payroll”. In addition, the government will provide substantial tax relief and grant and loan assistance.
“Our planned economic response will be one of the most comprehensive in the world,” according to Sunak, who was appointed chancellor last month and now is at the centre of a storm. He set out a package of economic interventions including:
Paying furloughed employees’ wages. Sunak said that “for the first time in our history, the government is going to step in and help to pay people’s wages”. Specifically, HM Revenue and Customs (HMRC) will reimburse 80% of the wage costs, up to a cap of £2,500 per month, for those employees who would otherwise have been laid off during this crisis. Employers will need to submit information to HMRC about the furloughed employees and their earnings. All UK employers — small or large, charitable or not-for-profit — will be able to access this support, which will be available for at least three months (backdated to 1 March) and be extended for longer if necessary. HMRC is urgently working to get the scheme up and running, Sunak said.
Deferring VAT payments. The government will defer the next quarter of valued-added tax (VAT) payments. All UK businesses are eligible. “That means no business will pay any from now until the end of June; and you will have until the end of the financial year to repay those bills,” Sunak said. The deferral will apply from 20 March 2020 until 30 June 2020. The deferral is automatic with no application required.
Business rates holiday for all retail, hospitality, leisure, and nursery businesses in England. The government will introduce a business rates holiday for the 2020-to-2021 tax year for retail, hospitality, and leisure businesses in England. As the chancellor put it, “We’re abolishing business rates altogether this year if you are in hospitality, retail, and leisure.” Nursery businesses in England will receive a similar business rates holiday. The relief from business rates (a property tax) will apply to the next council tax bill in April 2020, and no action by businesses is required. The relief announced by the chancellor is limited to businesses based in England.
Support for businesses that are paying sick pay to employees. The government will bring forward legislation to allow small and medium-size employers to reclaim up to two weeks of statutory sick pay (SSP) per eligible employee that has been off work because of COVID-19. Only employers with fewer than 250 employees are eligible. Employers should maintain records of staff absences and payments of SSP, but employees will not need to provide a GP fit note.
Deferring income tax payments of self-employed people. For individuals who are self-employed, income tax payments due on 31 July 2020 under the self-assessment system will be deferred until 31 January 2021, without corresponding penalties or interest. The deferral is automatic with no application required.
Grants to help businesses. In addition to providing grants to help pay furloughed employees’ wages, the government will provide funding for certain other cash grants, recognising that many small businesses will still face liquidity issues. For instance, many small retail, hospitality, and leisure businesses based in England will be eligible for grants up to £25,000 per property. Local authorities will write to businesses that are eligible for these grants.
Loans. The government will ensure that loans are available to help businesses stay afloat during these difficult times. A scheme delivered through commercial lenders, backed by the British Business Bank, will assist primarily small and medium-size businesses to access short-term, interest-free bank lending. The government will pay to cover the first 12 months of interest payments and any lender-levied fees. The scheme is now open for applications, and all major banks are offering it. Further, to help support liquidity among larger firms, the Bank of England will buy their short-term debt; the government will provide information on how to access this scheme shortly.
The Time to Pay service. For all firms and individuals struggling to pay their taxes due to COVID-19, the government is scaling up HMRC’s Time to Pay service, which can work out individually tailored arrangements.
In addition, the chancellor announced measures to strengthen the safety net by temporarily increasing the universal credit standard allowance and the working tax credit basic element by £1,000 a year for the next 12 months, among other steps.
For further information about the planned economic response, see the guidance at gov.uk.
Filing of accounts
In a move to support businesses the UK’s Companies House has said it may grant an extension to the filing of company accounts as a result of the coronavirus pandemic. Companies are advised to act before the filing deadline.
Additionally, The Chartered Governance Institute (ICSA), in conjunction with UK regulator the Financial Reporting Council (FRC) and global law firm Slaughter & May, has published guidance on how to arrange and conduct company annual general meetings in light of the spread of the coronavirus.
Meanwhile, on 21 March UK regulator the Financial Conduct Authority (FCA) “strongly” requested that all UK listed companies observe a moratorium on the publication of preliminary financial statements for at least two weeks. The FCA has published a Q&A relating to the moratorium.
Earlier, on 20 March, the FCA announced guidance for mortgage lenders and administrators and lenders to small businesses. It has also set out its expectations for insurance firms to show flexibility in their treatment of customers.
FCA Interim Chief Executive Christopher Woolard said in a press statement “no responsible lender should be considering repossession as an appropriate measure at this time”.
He added: “Small businesses can be confident that their access to funds can be based on how their business has performed in the past and its future prospects — not its position today.”
The FCA’s guidance is that customers experiencing payment difficulties as a result of the coronavirus should, if desired, receive a mortgage payment holiday for an initial period of three months.
Also, there should be no additional fee or charge, other than additional interest, as a result of the payment holiday.
As the coronavirus pandemic continues to spread, economic forecasters are predicting a sharp global downturn.
One forecaster, UK-headquartered research group Oxford Economics, expects global growth to drop to zero over the course of this year, with a fall of 2% in GDP in the first quarter. It says the global economy is then likely to resurge in 2021 with growth of 4.4% overall.
For more news and reporting on the coronavirus and how management accountants can handle challenges related to the outbreak, visit FM’s coronavirus resources page.
— Dave Strausfeld, J.D., (David.Strausfeld@aicpa-cima.com) and Oliver Rowe (Oliver.Rowe@aicpa-cima.com) are FM magazine senior editors.