Chancellor announces new Job Support Scheme – tax reaction

24 Sep 2020

budget 2021

The Chancellor has today announced the launch of a new ‘Job Support Scheme’ to replace the current furlough scheme from 1st November 2020.

The Chancellor’s announcement will have come as welcome relief to many, but there will remain challenges over the winter months. The current part-time furlough arrangements have already led to calculation errors and all employers will now have the inevitable compliance and administration burden of getting up to speed with a yet another new system. A simple extension to furlough may have been a more helpful boost to businesses, but was not likely given Rishi Sunak’s comments that it isn’t right to protect jobs which no longer exist. The fate of furlough was probably sealed by recent reports of the level of cases of fraud. 

Large businesses applying for the scheme will face restrictions, including not allowing capital distributions to shareholders while they are in receipt of support funding. We have seen some large businesses which remained profitable during lockdown make the decision to return furlough funds and the new job support scheme will at least seek to place funds where they are most needed. The requirement that employees work a third of their time will presumably address the Chancellor’s concern over supporting only what he has called viable jobs. Certainly not every job will be viable. Employers cannot put employees who are on redundancy notice on to the scheme, but there will still undoubtedly be job losses as the economy rebalances to live with coronavirus and that will mean many people will either need to retrain or seek new forms of employment which, in the current environment, is likely to prove very challenging. 

The hospitality sector has been hit hard, especially with the new 10pm curfew rules along with the shift to table service only for many. The industry will likely be breathing a sigh of relief that it will be able to access both the job support scheme and benefit from the extended VAT rate cut and payment deferral. The big loser from the scheme, though, could well be tourism which will benefit from the VAT reduction extension but will likely struggle to reconcile the 33% required working time with the inevitable quarantine and travel ban issues the sector will face.

Mike Hodges, partner at Saffery Champness, added:

“The judgment call for employers will be whether it is cheaper for them to keep on their employees – working at least a third of their time but with the employer paying 55% of their wage cost and the government paying 22% – or make them redundant.

“Those individuals who are still furloughed and where there is no work for them to do for the next 6 months are likely facing a difficult future as, even if they can be found work for a third of their time,  more than half of the burden of paying them will stay with their employer. For those businesses which are unable to operate, this may be a bridge too far with the only option available being to borrow more under one of the government’s schemes which the Chancellor has today extended.”

Read more about the latest announcements, here