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Sunak protects jobs with furlough bonus and VAT cut

A jobs retention bonus to bring back furloughed workers, a cut to VAT for the hospitality sector, and an increase in the SDLT threshold were the main headlines from the Chancellor’s Summer Statement aimed at protecting jobs. 

8th Jul 2020
Editor AccountingWEB
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Rishi Sunak - Summer Statement Cabinet
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Rishi Sunak announced today the second phase of the government’s response to the coronavirus with a widespread plan for jobs.

The Chancellor outlined his vision in the Summer Statement where he encouraged firms to keep on furloughed workers, cut VAT to 5% for the hospitality and tourism sector and increased the SDLT threshold to get the property market moving.

“We haven’t done everything we have so far just to step back now and say, ‘job done’. In truth, the job has only just begun,” said Sunak.

Sunak’s plans come as the country faces the deepest global recession since records began and an economy that has contracted by 25% - which he pointed out was the same amount it grew in the previous 18 years.

These support measures to create and protect jobs are the next phase ahead of the autumn Budget and spending review. “Our Plan for Jobs will not be the last action – it is merely the next in our fight to recover and rebuild after coronavirus,” said Sunak.

Furlough bonus

Sunak batted off calls to extend the furlough scheme past October by introducing the Jobs Retention Bonus, which incentivises employers to bring back furloughed staff through to January in exchange for a £1,000 bonus per employee.

For businesses to qualify for this bonus, Sunak explained that employees shouldn’t just be “returning for the sake of it – they need to be doing decent work”. The cost of that ‘decent work’ should be a wage of at least £520 on average each month from November to January 2021.  

Payments for the jobs retention bonus will be made after the bonus scheme finishes from February 2021. Further information on the finer detail of the scheme will be announced by the end of July.

Sunak opted for the furlough bonus rather than extending the scheme which he said would give people “false hope that it will always be possible to return to the jobs they had before” and could lead to skills fading.

The furlough scheme has been the centrepiece of the government’s coronavirus response and has supported over one million employers since the scheme launched in March and has protected 9m jobs. In May, Sunak confirmed that the scheme will wind down in October, with employers paying a contribution from September, while employers could bring employees back on a part-time basis from this month.

“This element of the Chancellor’s help may be small compared to the salary costs (effectively just over £300 per month), but will be welcome nonetheless,” said EY head of tax policy Chris Sanger.

Kickstarter Scheme

Sunak also unveiled the Kickstarter Scheme which is designed to help young people hit hard by the coronavirus-ravaged job market. The £2bn funded programme aims to create six-month work placements with a minimum of 25 hours per week for the under 25s.

The Chancellor stipulated that the funding for the roles are conditional on the firm proving the jobs are additional, with the candidate getting at least national minimum wage. Sunak said the government will pay for the six month placement, plus an amount to cover overheads.

The application process for the kickstart grant worth around £6,500 opens next month, with the ‘kickstarters’ starting jobs from the autumn.  

In addition to the kickstarter scheme, Sunak encouraged employers to create new apprenticeships which the government contribute £2,000 per apprentice and businesses will also receive a £1,500 bonus if they hire apprentices aged 25 or over.

SDLT threshold increase

The Chancellor highlighted house building as a big job creator. But with property transactions falling in May by 50% due to the lockdown, Sunak announced a cut to stamp duty to boost the housing market.

From midnight last night, residential SDLT in England and Northern Ireland temporary increases from £125,000 to £500,000 until 31 March 2021, bringing the average stamp duty bull down to £4,500.

Andrew Southern, Chairman of property developer Southern Grove called the move the ‘Most progressive SDLT alteration since it became a Treasury cash cow’.

Meanwhile, Tim Walford-Fitzgerald, private client partner at accountancy firm HW Fisher, questioned the timing.  “The economy is uncertain and this reduction won’t necessarily be enough to spark the confidence needed to take on long term liability of a house purchase. There is more to consider – mortgage availability, rising house prices, economic growth and overall market confidence are critical factors and the Chancellor should not forget that.”

David Westgate from Andrews Property Group called the cut a “high risk but a welcome short-term stimulus”, but warned of unintended winners, “purchasers of higher value properties who have just had £15k knocked off their completion bill.”

Green home grants

As well as a stamp duty cut, the Chancellor hopes a £2bn green home grant will ensure the housing market has a green recovery. Homeowners and landowners will be able to apply for vouchers up to £5,000 and £10,000 for low-income households.

Sunak expects the grant to support over 100,000 green jobs and will upgrade over 600,000 homes in England.

VAT cut for the hospitality sector

In the final part of his speech, Sunak turned his attention to one of the hardest-hit sectors: hospitality and tourism.

In order to get “pubs, restaurants, cafés and B&Bs bustling again”, Sunak reduced the VAT in the hospitality sector from 20% to 5%. This cut will come into effect from next Wednesday until 12 January.

The VAT cut will apply to food and non-alcoholic drinks from restaurants, pubs, bars, and cafés. It also extends to accommodation and admissions to attractions like cinemas, theme parks and zoos until 12 January. HMRC is set to release more guidance on the VAT cut in the coming days.

As Richard Asquith pointed out previously on AccountingWEB, the UK’s decision to cut VAT for the hospitality sector mirrors a similar move by other European countries such as Germany, Belgium and Czech. At the time, Asquith wrote: “Such a tax subsidy can be introduced within a few weeks and so deliver an immediate economic boost. There is conflicting evidence on the effects on prices, and whether retailers pass on the cut to retain it and prop-up profits.”

Paul Falvey, a tax partner at BDO, also expects the cut to act as “a significant boost to the hospitability and entertainment sectors, but businesses more generally still need time to pay their VAT bills with the deferral ending 30th June.” He added, “Help for hospitality is welcome, but cash flow will be an increasing pressure on business, especially as tax deferrals are lifted and grants end.”

Eat Out to Help Out

Sunak saved his ‘rabbit out the hat’ announcement until the end with a measure that has “never been tried in the UK before”. Sunak put his money where his mouth is with the Eat Out to Help Out discount, which will be available to everyone in the country throughout August.

Diners will be entitled to a 50% discount up to £10 per head off their meal at any participating restaurant, café, pub or eligible business which serves food from Mondays to Wednesdays. Businesses will be able to register for the scheme from Monday and they will be reimbursed each week in August with the funds arriving in their bank account within five working days.

Reaction

While the tourism and hospitality sectors received a lifeline in Summer Statement, the beauty sector which has been hit just as hard, missed out on any government support packages this time around. Practice owner Ria-Jaine Lincoln who specialises in the beauty industry was disappointed by the omission.

“I know first-hand the value of beauty [but] the summer budget offered nothing. The furlough reward bonus was a nice touch but means nothing if businesses can’t open before the changes to furlough put them out of business,” she tweeted to AccountingWEB.

Since the government announced measures to support businesses at the start of lockdown, accountants have worked around the clock to help clients with furlough claims and government grants. Today’s announcement means the busy workload is not likely to abate anytime soon, as Kirsty McGregor from the Corporate Finance Network noted.

“Accountants all over the country are hitting their heads on the desk with the thought of more claims, VAT changes from next week and who’s reclaiming these food vouchers?”

Rebecca Benneyworth and Neil Warren will be answering your questions on the Summer Statement and VAT on this Tuesday's Any Answers Live. Spaces are limited so register today to avoid disappointment. Click here to join the live Q&A.

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By Justin Bryant
09th Jul 2020 16:38

The SDLT thing has some bizarre consequences e.g. FTB relief has effectively been abolished for the next 9 months, so FTBs are now arguably worse off, all else being equal. [Edit] Indeed it is actually abolished temporarily per the link below:

https://publications.parliament.uk/pa/cm5801/cmagenda/PCTA%20resolutions...

Also, an MDR claim can now leave you worse off due to the 1% minimum MDR rate!

But that's all nothing when you read this "too good to be true" comment: https://www.accountingweb.co.uk/any-answers/new-temporary-stamp-duty-rates

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