On 8 July 2020, the government published A Plan for Jobs 2020, which was effectively a Summer Statement.
As the title suggests, the measures are focused on employment – but they’re wide ranging. They include VAT rate reductions for certain sectors and schemes aimed at boosting the work experience of young people.
Below, we look at what this means for businesses and employers.
VAT rate reclassification to 5%
The hospitality, holiday accommodation, and attractions sectors receive help in A Plan for Jobs 2020. These industries have been particularly hard hit during the coronavirus (COVID-19) disruption.
Supply of the following goods from these sectors is reclassified to the reduced 5% rate of VAT as of 15 July 2020 to 12 January 2021:
Food and non-alcoholic drinks
Restaurants, pubs, bars, cafés and similar premises can apply the reduced 5% rate of VAT to supplies of food and non-alcoholic drinks consumed on their premises.
The reduced rate also applies to supplies of hot takeaway food and hot takeaway non-alcoholic drinks, including takeaway establishments, but it doesn’t apply to the supply of catering services for consumption off-premises.
More details can be found in VAT Notice 709/1.
The reduced rate of 5% can be applied to supplies of accommodation.
For the purposes of the temporary VAT reclassification, this is considered to be supplying sleeping accommodation in a hotel (or similar), charging fees for caravan pitches (and associated facilities), or charging fees for tent pitches and camping facilities.
More details can be found in VAT Notice 709/3.
If you charge a fee for admission to attractions for which the standard 20% VAT rate applies, this can be reduced to 5%.
If the admission fee is currently exempted then, don’t worry, that can continue and there’s no need to suddenly charge 5% VAT.
Note that this only applies to certain attractions and HMRC provides more guidance.
This mainly benefits businesses providing supplies to consumers because of the areas covered, but may benefit businesses – for example, business travellers will pay less for some of their essentials.
The measures apply to all relevant supplies made across the UK.
What this means
A VAT rate reduction offers the opportunity to either reduce your prices and/or increase profit margins.
There’s no directive from the government that the VAT rate reduction benefit must be passed on to consumers, but you might want to examine and potentially revise the terminology on invoices and/or receipts – for example, a ‘VAT included’ statement shouldn’t raise any questions from consumers if you decide to maintain existing prices.
However, the VAT rate deduction can be administratively complicated. As with any tax change, there are details that could catch out unwary businesses. You should consult an accountant or tax specialist if in any doubt.
Here’s a handful of things to note.
You should be prepared for potential cash flow issues if your business uses money in the VAT account as a form of temporary credit to pay suppliers or staff, pending payment of the return.
This amount may be reduced if you’re accounting for only 5% VAT on some supplies.
Depending on your net inputs, the reduced rate of 5% may mean your businesses becomes a repayment trader. In other words, your business will claim more VAT back then it pays in each VAT Return.
In this case, it might make sense to switch to monthly VAT Returns to provide quicker access to this money, and therefore benefit cash flow. This can be done by making a request to HMRC.
To help businesses that use the flat rate scheme, the government has also announced that there will be a reducing in the flat rates for impacted sectors, effective for the same dates as the VAT rate reclassification.
Catering services as described above should apply 4.5% (down from 12.5%), hotel and accommodation as described above should apply 0% (down from 10.5%), and pubs are reduced to 1% (down from 6.5%).
The temporary change in rates means the tax due will need to calculated by apportionment.
HMRC provides the following guidance: “The first calculation should start from day one of your accounting period to the last day of that flat rate. The second should start from the date of the new flat rate to the end of your accounting period.”
It may make business sense to move off the flat rate scheme in order to apply the reduced 5% rate, but you should note that you can’t switch back until 12 months later – and in January 2021 the rate returns to normal.
If you are unsure if the change to flat rate will be beneficial, you should discuss this with your tax adviser or accountant.
Finally, in your accounting software, you may find it useful to create a new VAT code for the temporary reduced rate supplies to help provide an audit record of which sales and purchases were at this reduced rate in case of any audit or other future queries.
Employment measures in A Plan for Jobs
As part of the Summer Statement, the government announced a number of employment initiatives. Here, we look at those that impact employers and examine measures employers might need to take.
Job Retention Bonus
The Job Retention Bonus is effectively the final component of the Coronavirus Job Retention Scheme (CJRS). Every UK employer will be able to claim £1,000 for every furloughed employee who remains continuously employed all the way through to the end of January 2021.
This money is for the employer, unlike the other components of the CJRS that were for employees.
The bonus will be paid from February 2021, and the government says more details will be announced at the end of July 2020.
It’s likely that employers will have to apply online to get the money, if existing coronavirus support schemes provide any clues.
The caveat is that this only covers employees who’ve previously been furloughed under the CJRS, although it’s not yet clear if there will be any restrictions on this (for example, whether staff will have to have undergone a minimum furlough period).
The new CJRS rules that took effect on 1 July 2020 mean only previously furloughed employees can now be furloughed.
So this bonus scheme can only apply to those employed and furloughed on 12 July 2020 or earlier (an exception might be made for those returning from statutory leave or returning military reservists who have undergone furloughing for the first time since 1 July 2020; this should become clearer when the government provides more details).
Additionally, to claim for an employee, they will have to earn above the Lower Earning Limit of £520 per month, on average, between 1 November 2020 and 31 January 2021.
This is presumably to avoid businesses keeping on staff at a reduced salary rate simply to claim the bonus.
What this means
The intention from the government is to encourage businesses to not layoff staff.
However, the bonus is also likely to be considered income by the employer receiving it and therefore may bring a tax liability.
The headline figure of £1,000 may be significantly less come the end of the tax year.
Placements for young people
The government has created or enhanced a number of schemes intended to encourage businesses to take on people aged between 16 and 25.
One is new, while others are older schemes that have been enhanced.
The new scheme is called Kickstart. Businesses able to offer six-month placements for young people aged between 16 and 24 will be invited to do so. The placement should be for a minimum of 25 hours per week.
In return, the government will pay the National Minimum Wage and associated National Insurance contributions (NICs) for the employee, along with minimum pension automatic enrolment contributions, although only for that minimum 25 hours each week.
No details are yet available about how the individual in the placement will be paid.
However, the scheme is only open to 16 to 24-year-olds who are claiming Universal Credit, so it might be that the government pays the salary via this channel.
Or, as with the existing CJRS, businesses might be required to pay the employee and claim the salary back each month.
£1,000 bonus for traineeships
Traineeships are an existing scheme where businesses can provide placements to unemployed individuals aged between 16 and 25.
Placements last between six weeks and six months but must provide a minimum of 100 hours in total (no more than 240 hours in total for benefits claimants).
Effectively, the scheme is a form of pre-apprenticeship for the trainee and is intended to deliver vital work experience.
The government is putting more money into the scheme as part of the coronavirus Plan For Jobs 2020, which it hopes will lead to more traineeships. As part of this, the employer will receive a one-off payment of £1,000 for each traineeship they provide.
Again, it’s unclear how long this scheme last for, and it isn’t yet clear when or how the £1,000 payment will be made.
However, the traineeship scheme is handled by the Apprenticeship Service, and existing rules for apprenticeships say that payments of this kind for employers are paid in two halves – three months into the apprenticeship, and then 12 months into the apprenticeship.
These are paid by the training provider who you work with to provide the traineeship.
The money will most likely have a tax implication, so the £1,000 headline figure is likely to be less come the end of the tax year.
£2,000 more for apprenticeships
Employers who offer apprenticeships for those aged between 16 and 18 – or those who are between 19 and 24 and who have special needs and therefore an Education, Health and Care (EHC) Plan – already get a payment of £1,000 per apprentice.
A Plan for Jobs 2020 brings an additional payment of £2,000 for every apprentice under 25, while for apprentices 25 and over a payment of £1,500 is available.
This is in addition to the above amount, meaning that an apprenticeship for an individual aged between 16 and 18 (or those who are between 19 and 24 with an EHC) could deliver £3,000 to an employer.
Assuming existing rules are followed, the payment will be delivered in two instalments – the first three months into the apprenticeship, and the second 12 months into the apprenticeship. These are paid by the training provider you work with to create and offer the apprenticeship.
Again, there may be a tax implication for this funding.
What this means
The schemes mentioned above are just some of the employment initiatives from the government offered as part of A Plan for Jobs 2020, but we’ve limited this article to those that are both new or that directly affect employers.
The goal is to encourage businesses to utilise young people, who have been badly hit by the coronavirus disruption. In all cases, they’re about giving young people work experience that they can use as a stepping stone to other positions.
We don’t yet know when any of these schemes will start, although the government promises more details on 31 July 2020.
It’s also not clear if the schemes will be long-term measures, or only for the duration of the ongoing coronavirus disruption. The Future Jobs Fund might provide a clue, and it lasted around 18 months.
The various new schemes offer a number of advantages and pitfalls. While receiving free labour and money offered by the Kickstart scheme and traineeships might seem enticing, they come with considerable administrative burdens.
The government is clear that these schemes should provide “high quality” employment, and traineeships and apprenticeships need to be designed to meet the needs of the individual.
The schemes are not a way to receive free short-term labour.
If your business already has experience of schemes such as this, and has available employment capacity, the cash and labour being offered creates a powerful incentive to carry on and potentially go further.
Other measures in the Summer Statement
The government announced some new schemes as part of A Plan for Jobs 2020, as listed below. Again, we’ve covered those of interest to business owners or operators.
Eat Out to Help Out
This scheme is aimed at restaurants, cafes, pubs and similar establishments. It requires registration by the business owner but means a 50% discount (capped at £10) can be applied per customer for meals eaten in, along with non-alcoholic drinks.
The scheme begins on 3 August 2020 and ends 31 August 2020, but can only be used on Mondays, Tuesdays and Wednesdays. Claims must be submitted between 7 August and 30 September 2020, at which point the claim service closes.
If you make use of Eat Out to Help Out, the whole of the discount must be applied to the benefit of the consumer.
You can’t apply a smaller discount, charge the customer the difference, and then claim for the full discount. You can’t apply the discount to alcoholic drinks, or any service charge, and you still have to pay any tax (including VAT) due on the sales.
You keep records of the number of people and transactions, along with the total amount of discounts each day. You then claim this back from the government every week.
Notably, consumers need do nothing to benefit. There isn’t a voucher scheme, for example.
The government anticipates businesses both publicising and applying the discount at their discretion, and it’s worth noting the discount can be used in combination with any other offers you may be running (e.g. two for the price of one).
Additionally, there’s no limit on how many times a customer can return and make use of the scheme.
Stamp Duty Land Tax, to give it its full name, has been reduced to zero for home purchases of up to £500,000.
This is actually an extension of the Nil Rate Band of Residential Stamp Duty Land Tax (SDLT) and therefore only applies to residential properties.
However, the nil rate band benefits businesses as well as individuals who sell or transfer a new leasehold because it also applies to the ‘net present value’ of any rents payable.
Green Homes Grant
The government will provide at least £2 for every £1 landlords or homeowners spend to make their homes more energy-efficient, up to £5,000 per household.
There are no details about when or how the scheme will operate, other than that it’s intended to provide help across 2020/21, but we should know more soon.
Conclusion on the Summer Statement
A Plan for Jobs 2020 will bring positive outcomes for those businesses that are eligible.
You should start investigating the measures immediately, and put in place whatever administrative changes are required – changing invoices and receipts to reflect the reduced VAT rate, for example, or considering the next steps for your usage of the Job Retention Scheme.