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COVID-19 update: Spending Review - what does it mean for businesses?

In his spending review on 25th November Rishi Sunak said the “economic emergency” caused by COVID-19 has only just begun, as he warned the virus would mean lasting damage to growth and jobs.Covid 19 maco1

Official forecasts now predict the biggest economic decline in 300 years.

The UK economy is expected to shrink by 11.3% this year and not return to its pre-COVID size until the end of 2022. Government borrowing will rise to its highest outside of wartime to deal with the economic impact.

The Office for Budget Responsibility (OBR) expects the number of unemployed people to increase to 2.6 million by the middle of next year.

This means the unemployment rate will reach 7.5%, the highest level since the financial crisis in 2009.

Amongst other announcements made on the 25th November, the minimum wage – which has been rebranded as the National Living Wage – will increase by 2.2% - or 19p – to £8.91 an hour, with the rate extended to those ages 23 and over. Other rates were also increased. From April 2021, 16 and 17 year-olds will see their pay go up to £4.62 per hour, from £4.55.

The chancellor also announced a £4.3bn package of support to help the jobless get back into work.

What does this mean for businesses?

Clearly the situation is unprecedented the cost of COVID-19 is huge and the government will need to find more money from spending cuts and taxes just to balance revenues on a day to day basis.

Businesses should expect to see tax raises announced in the March 2021 budget and there is already speculation that the government could raise money from changes to Capital Gains Tax, pensions relief or self-employment taxes. However, this will not be sufficient to cover the COVID-19 costs which could in turn result in corporate tax, income tax, VAT and national insurance increases.

The big decision for the government will be to decide when to stop the support to the recovering economy and when to start strengthening public finances by tax rises. The extreme uncertainty underlines how difficult that decision could be. Businesses should strengthen their cash flow management now and the most important advice we can give our clients is to take some time to plan ahead to look at maximising revenue and minimising or streamlining your operating costs. This can provide you with a better idea of how tax raises could affect your business.

If you would like to discuss anything highlighted in this newsletter please do get in touch with your Martin Aitken contact – we would be happy to help.

Click on the links below to read more on other recent changes and announcements made by the government:

Pay VAT Deferred due to Coronavirus (COVID-19)

HMRC has issued guidance on paying deferred VAT. If you deferred VAT between 20 March and 30 June 2020 and still have payments to make, you can:Cash Flow

  • pay the deferred VAT in full on or before 31 March 2021
  • opt into the VAT deferral new payment scheme when it launches in 2021
  • contact HMRC if you need more help to pay

If you want to opt into the new payment scheme:

You cannot opt in yet. The online opt in process will be available in early 2021. You must opt in yourself. Your agent cannot do this for you.

Instead of paying the full amount by the end of March 2021, you can make up to 11 smaller monthly instalments, interest free. All instalments must be paid by the end of March 2022.

The scheme will allow you to:MACO invest

  • pay your deferred VAT in instalments without adding interest
  • select the number of instalments from 2 to 11 equal monthly payments

To use this scheme you must:

  • still have deferred VAT to pay
  • be up to date with your VAT returns
  • be able to pay the deferred VAT by Direct Debit

If you opt into the scheme, you can still have a time to pay arrangement for other HMRC debts and outstanding tax.

Get ready to opt into the new payment scheme:

Before opting in you must:

  • create your own Government Gateway account if you don’t already have one
  • submit any outstanding VAT returns from the last 4 years. You will not be able to join the scheme if you have not done so
  • correct errors on your VAT returns as soon as possible. Corrections received after 31 December 2020 may not show in your deferred VAT balance
  • make sure you know how much you owe, including the amount you originally deferred and how much you may have already paid

You should also:

  • pay what you can as soon as possible to allow HMRC to show the correct deferred VAT balance
  • consider the number of equal instalments you will need, from 2 to 11 months

More on how to pay VAT payments deferred between 20 March and 30 June 2020.> 

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COVID-19 Winter Plan

The government’s plan for managing COVID-19 through the end of 2020 and into the start of 2021 was released 23 November.19796 MACO FINANCIAL ACUITY NEWSLETTER WEB FILES 15

It outlines:

  • A route back to normality
  • Controlling the virus
  • Protecting the NHS and the vulnerable
  • Keeping education and the economy going

To download the COVID-19 Winter Plan click here. 

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Get in touch if you have any queries to any of the information highlighted within this newsletter. 

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