September 24th, 2020
You hardly need us to tell you that these are extraordinary times for the Treasury. In a normal year (remember those?) there is a set rhythm for the development of tax policy, with a cycle of consultations, consultation responses, draft legislation leading to a Budget and Finance Bill. All of that has now gone out of the window. The 2019 Budget was cancelled (thus giving us the first year in modern times without a Budget) and the planned 2020 Autumn Budget has just been scrapped because, in the words of the Treasury “now is not the right time to outline long-term plans - people want to see us focused on the here and now”. That is a statement which we never imagined we would read.
Instead we have just heard the latest plans for dealing with the crisis. As is the fashion these days much of it was briefed in advance but there were still some surprises. What struck us was the relatively upbeat mood at the start: the Chancellor said there were reasons to be cautiously optimistic, though acknowledging the fear that people had about the pandemic. But as the speech continued the seriousness of the situation facing the economy became clear. We are no longer talking about temporary measures. We are in this for the long haul.
The centrepiece is the new plans to support employment. The furlough scheme, which comes to an end next month, was all about support for people who were not working. The new arrangements by contrast are about helping people who are working – preparing for the “new normal” which he said would last “at least” six months. The emphasis is about supporting viable jobs not every job. The new scheme, which starts on 1 November, will support the wages of people in work. Employees must work at least 1/3 of normal hours, which will be paid for by the employer. For the hours not worked the employer and the government will each pay 1/3 of the employee’s equivalent salary. Notably this will be open to employers even if they hadn’t previously claimed furlough. It will be available without conditions to all small and medium-sized businesses, but large businesses will have to show that their turnover has gone down. The self-employed support scheme is also to be extended, but there will be no change to the eligibility conditions. This will come as a big disappointment to those who fell through the net when the scheme was first introduced, but we assume that the government is worried about the possibilities of fraud should the scheme be opened up more widely.
Tax cash flow was also a key part of the speech. VAT which had previously been deferred was due for payment in March. That was on the assumption that the economy would have recovered by then but that is clearly not going to be the case and so businesses will be allowed to spread repayment of the deferred amount over 11 months during the 2021/22 financial year. That will be welcome, as will a similar spreading of self-assessment payments due on 31 January 2021, though the details of how this will work are not yet clear.
The other key tax change is that the temporary VAT rate of 5% for the hospitality sector will now be extended until 31 March 2021.
As ever the Chancellor’s delivery was impressive – he does have the ability to give hard news but still retain a high level of personal empathy. But who could have thought that he would ever need to make such a statement? In normal circumstances any one of these announcements would have been seen as extraordinary. It is a mark of where we are now that the package almost seemed normal.
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