Summer statement 2020: What your clients should know
"Our message to business is clear: if you stand by your workers, we will stand by you,” Chancellor Rishi Sunak declared in the government’s Summer Statement on 8 July.
He announced a VAT rate cut from 20% to 5% for the hospitality industry until 12 January 2021, and a stamp duty land tax (SDLT) holiday on residential property of under £500,000 purchased before 31 March 2021.
On top of that, he unveiled a £9bn policy to retain jobs as well as £2bn in schemes creating new jobs for young people (aged 16 to 24) not in education or employment, and £3bn ‘green jobs plan’. But what should you advise clients looking to create a plan with tax efficiency and growth at its centre?
The end of furlough
Chancellor Rishi Sunak reiterated the Coronavirus Jobs Retention Scheme (CJRS) will “wind down flexibly and gradually” through to 31 October. From 1 September, firms will need to cover 10% of furloughed staff ’s wages with the government providing the remaining 70% (totalling 80% of wages, up to £2,500 per month). During October, employers will need to cover 20% of furloughed staff’s wages with the government providing 60% until the scheme ends.
The Jobs Retention Bonus, announced in the Summer Statement, will ensure firms receive a £1,000 bonus in February 2021 for every furloughed worker they re-employ between November and January – if the wage is at least £520 per month.
However, Blick Rothenberg partner Richard Churchill says this isn’t a “game changer”. “Most client decisions around job retention are being made on a short-term horizon due to immediate cashflow issues,” he says.
“February still feels a long way away, and [the bonus] is not significant enough to change decisions as to what’s best for a business in the medium to long term if costs need to be reduced.” While clients are aware that the CJRS is changing, they “want confirmation as to how it works practically”, Churchill says, and advice should be focused around that.
Some clients will consider the Summer Statement measures to create new jobs for young people: the Kickstarter scheme and the new traineeship and apprenticeship bonuses.
Theta Financial Reporting’s managing director Chris Biggs says: “I can see the value in bringing in young people, but businesses should think through what’s available and if you can use it to see you through – ‘keeping the lights on’ and making sure you can pay your bills is important. If you can keep cashflow going these schemes can be useful, but they’re not necessarily a ‘fix’ to keep people on the payroll.”
Cashflow is king
While the VAT cut for restaurants, accommodation and attractions is “a huge benefit in theory”, Biggs notes many people are still reluctant to go out, and some hospitality businesses still cannot open. Clients need to decide whether to pass on the saving to customers via prices or not, he says, “but how many of those businesses will benefit if they cannot get people through their doors?”
Eligible businesses are already factoring the lower rate into their cashflow, Churchill says, but generating positive cashflows while operating at an occupancy far below their capacity will be a problem. “Additional costs to be Covid-safe alongside reduced revenues will continue to cause cashflow concerns,” he warns.
For private clients and buy-to-let landlords looking to take advantage of the SDLT holiday on residential property under £500,000, Churchill notes that house prices tend to increase during a stamp duty holiday, and that property developers may see a surge followed by a lull from April.
“Clients bringing product to the market shortly should optimise this opportunity to sell before 31 March 2021 without discounting prices, while also being conscious that demand may be reduced for those who had sites coming to the market during 2021 – so look at contingencies for them in terms of extending finance, or restructuring to allow some of the assets to be held and potentially rented,” he advises. Landlords may also wish to consider utilising the Green Homes Grant to make property improvements.
The road ahead
“The vast majority of businesses that we work with have found a way to survive lockdown,” says Paul Hornby, managing director of accountancy firm J F Hornby. “But many of them emerge battered and in need of a strong trading period to get back on track. The road ahead will be challenging.”
Churchill agrees – and with talk of tax rises in the autumn, he says clients need to ascertain what their revised business plan and cashflow forecasts look like, and understand how resilient that is to future challenges, particularly local lockdowns.
“Practical conversations we are having with our clients are about more local supply chains, whether companies need to invest into IT to improve remote working, and does the focus of a business need to change to be more digital,” he adds.
“Cashflow and cost-cutting will remain common conversations, and it’s correct to seek to access the relevant government funding but [consider what is] appropriate. The initial shock to the system has now passed, but many businesses are still waiting to see the impact on demand for their products, and should ensure forecasts are updated and any future issues identified.”
Santhie Goundar is a freelance journalist