Business Loans Get Starring Role In Winter Economy Plan

getty A major part of the government’s response to the economic impact of the coronavirus pandemic has been to make capital available to businesses via a range of underwritten loan schemes. As part of the Winter Economy Plan unveiled by the Chancellor today, access to these schemes will be extended […]

A major part of the government’s response to the economic impact of the coronavirus pandemic has been to make capital available to businesses via a range of underwritten loan schemes.

As part of the Winter Economy Plan unveiled by the Chancellor today, access to these schemes will be extended to 30 November 2020 for new applications. The schemes include:

Bounce Back Loan Scheme (BBLS) which has provided £38 billion of finance through more than a million loans to UK-based small businesses

Coronavirus Business Interruption Loan Scheme (CBILS) which has provided over 66,000 loan facilities worth £15.5 billion to eligible UK-based businesses with turnover under £45 million

Coronavirus Large Business Interruption Loan Scheme (CLBILS) which has provided more than 566 facilities worth over £3.8 billion to eligible UK-based businesses with turnover above £45 million.

Existing business borrowers

Mr Sunak also announced measures to help businesses that have already taken advantage of these schemes.

For example, BBLS borrowers will have access to a new Pay as you Grow initiative, where the government will give them the option to repay their loan over a period of up to 10 years. This will reduce their average monthly repayments on the loan by almost half.

Businesses with BBLS loans will also have the option to move temporarily to interest-only payments for periods of up to six months (an option which they can use up to three times), or to pause their repayments entirely for up to six months (an option they can use once and only after having made six payments).

The government is also to allow CBILS lenders to extend loan terms up to 10 years to provide additional flexibility for firms which may otherwise be unable to repay their loans.

VAT and self-assessment

The Chancellor also said that over 500,000 businesses which deferred VAT due in March to June 2020 will be given the option, under the New Payment Scheme, to spread their payments over the financial year 2021-2022.

Rather than paying in full at the end of March 2021, businesses will be able to choose to make 11 equal instalments over 2021-22.

All businesses which took advantage of the VAT deferral can use the New Payment Scheme. Businesses will need to opt in, but all are eligible. HMRC will put in place an opt-in process in early 2021.

The government is also to give the self-employed and other taxpayers more time to pay taxes due in January 2021, building on the self-assessment deferral provided in July 2020. Payments will be accepted in monthly tranches throughout 2021.

Hospitality, tourism and travel

Mr Sunak also announced businesses in the hospitality and tourism sectors will continue to pay a reduced rate of VAT (5%, instead of the full rate of 20%), until 31 March 2021. The reduced rate was scheduled to revert to the full rate on 12 January.

Phil Mills at consultants Old Mill said the taxation of the hospitality industry needs fundamental reform: “We’re pleased to see the extension of the VAT cut but that there has to be a recognition that the hospitality industry has long been treated as a tax collector for the government while others in the food industry enjoy a more favourable VAT treatment, paying 0% in some cases.

“Ideally, we would like to see a longer term change particularly as we move out of the EU and start to better shape our own policies in the future.”

Chris Galanty at Flight Centre Travel Group, the travel agency, welcomed the launch of the Job Support Scheme and the cancellation of the VAT increase for the hospitality and tourism industry but said the measures offer little comfort to the travel industry: “We are disappointed the government has not announced more targeted support for the sector. Many jobs have already been lost and, if urgent action isn’t taken, many more are likely to go. 

“At Flight Centre we have not seen a material shift in revenue since the crisis began and as a result we announced in July that around half of our UK employees will be made redundant. This, coupled with our retail store closures up and down the country, was devastating, which is why we need to act now in order to save more jobs, and save the travel industry itself.”

Mr Galanty said the UK government should heed the call from airports and airlines to introduce testing on arrival – a model that is working successfully at many airports around the globe, such as Frankfurt, Amsterdam and Dubai. 

He also wants the government to consider exempting business travelers from quarantine completely as their risk of contracting the virus is extremely low. He says trips are planned meticulously as employers are responsible for their business travelers’ safety, and travel policies stipulate which airlines and hotels can be booked based on hygiene and cleaning protocols. 

Mr Galanty said: “Business travel is critical to the economy, contributing around £220 billion in GDP in 2019. Business travelers get the deals done and build relationships which drive global trade. That’s going to be even more vital not only in rebuilding the British economy post-pandemic, but also post-Brexit.  

“Since March, business travel has fallen by 90 per cent, and, according to the Business Travel Association, if this trend continues throughout 2020, business travel’s contribution to GDP will fall by £150 billion.”

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