Amid the fear of a second wave of coronavirus pandemic, Chancellor Rishi Sunak’s Winter Scheme comes bearing some gifts and some ambiguous elements. With a respite in business loan schemes, Bounce Back Loans will be extended from six years to 10, cutting monthly repayments by nearly half.
Businesses can apply to suspend repayments altogether for six months and not see their credit fall. Typically replacing furlough with the Job Support Scheme, for someone on £2,000 a month working half the hours, they would get £1,000 normal pay plus £333 from their employer and £333 from the government, though a pay-cut is definite.
This has followed after Sunak’s summer economic statement in July 2020, which confirmed that the furlough scheme – which subsidised wages to the tune of £10bn a month – will end in October.
When it comes to taxes, Sunak’s scheme provides a 15% emergency VAT cut for the tourism and hospitality industries which will be extended from January 2021 to 31 March. Businesses who deferred their VAT bills will be able to pay back their taxes in 11 smaller interest-free instalments.
As per the winter scheme, self-employed individuals seem to be in an uncertain space. The extension will be in the form of two taxable grants. The first grant will cover a three-month period from the start of November until the end of January. This initial grant will cover 20% of average monthly trading profits, paid out in a single instalment covering 3 months’ worth of profits, and capped at £1,875 in total. This is much less than the current grant available to the self-employed, which is worth 70% of profits and capped at £6,570.
The second grant will cover a three-month period from the start of February until the end of April. The government will review the level of the second grant and set this in due course.
However, these schemes come with their own challenges- especially for those on zero-hour contracts.
Zero-hour contracts and redundancies
Deepa Sugathan, a Solicitor and Partner at a Central London law firm, Silk Route Legal, told Asian Voice that there is no specific reference to calculation of compensation for zero-hour contracts under the Job Support Scheme due to come into effect from 1 November 2020.
“We are expecting further guidance to clarify these concerns to ensure fair treatment to employees on zero-hour contracts,” she said.
Talking about the redundancy packages available to employees, Deepa explained that the basic legal position is that the employees who have completed 2 years of continuous service are eligible to receive the statutory redundancy pay. The position remains the same for furloughed employees. The legislation goes further to ensure that the redundancy pay is to be calculated based on a furloughed employee’s actual wages rather than the furloughed pay.
Deepa clarified that the winter scheme’s solution for the self-employed is the extension of the Self Employment Income Support Scheme Grant (SEISS).
“The inherent issues that were identified in the SEISS are not factored in this extension. Having said that, the Chancellor is facing an unusual challenge of reaching out to all deserving and at the same time preventing fraudsters from misusing such schemes,” she added.
Satpal Singh from Alliance Chartered Accountants London thinks that the government needs to provide detailed guidance on what happens to zero-hours workers. He said, “The plans they have announced around the new ‘Job Support Scheme’ make for great headlines, but detail is thin on the ground. Hopefully we will get more guidance in the next month and there will be support for zero hours workers. But as the government is trying to reduce the amount it is spending on support; it’s not going to be a huge amount.”
Speaking from an accountant’s perspective on the eligibility for the redundancy package, he said, “The government’s guidance for people who were furloughed using the Coronavirus Job Retention Scheme (CJRS), then made redundant because their employer is now insolvent, is not great and is still being developed. Workers still have certain rights when they are made redundant, these include getting redundancy pay, a paid notice period and any money their employer owes (for example, unpaid wages).” The non addressal of the original scheme for the self-employed and their fate is nothing but a tragedy according to Satpal. “People who left their jobs and became self-employed after 6 April 2019– so almost a year before the first lockdown - were left without any support. They did not qualify for self-employed income support (SEIS) and are again excluded from the winter plan. I understand the government cannot support everyone, but there are thousands of people who started their journey of entrepreneurship after 6 April 2019, and they have been left without support other than to apply for universal credit,” he explained.
Praveen Joshi, Director at RSK Business Solutions, said, “Rishi Sunak has managed to show both empathy and maturity in his role as the Chancellor of the Exchequer. But there are some gaps in the government policies around self-employed and zero-hour contracts, which should be reviewed.
“The only feasible solution may be to base this on average working hours done under such a contract in the last financial year for the concerned employer. Employers also have a moral duty to have empathy towards the employees. They should explore all possible options before going for the redundancies.”
Since the Winter Scheme did not address any of the problems with the original plan for the self-employed, what happens to them? Joshi said, “Company directors who pay themselves a dividend are not covered by the SEISS. This is a major issue in technology sectors as most IT Contractors prior to the pandemic operated this way. IT Contractors find themselves in a loss as they only took nominal salaries and mainly relied on the dividend payments. Additionally, from the perspective of SMEs, the Kickstart Scheme does not work out due to the minimum requirement of 30 placements. As per the government, multiple SMEs can join to apply under this scheme, but this is not a practical solution. RSK Business Solutions as a business would have made use of this scheme if such a limit were not set by the government.”
Aadit Shankar, Founder, Atcha UK, a start-up that delivers Indian food on the go fortunately saw his business flourish during the pandemic. Speaking to Asian Voice, Aadit said, “The government has got a lot wrong in its response to the pandemic, especially with respect to hospitality, but broadly speaking the Chancellor’s financial support has been crucial to us surviving and ultimately growing. We’re an online business but even we’ve had to pivot and make some tough decisions; a small grant from the council and a bounce back loan did help us through the toughest months when sales were down by around 50%. The winter plan, particularly the extension of reduced VAT and flexible loan repayment are a huge help and give us the confidence to believe we can make it through this!”
