AAT accounting practitioners give their analysis of the Chancellor’s summer statement.
This summer economic update from chancellor Rishi Sunak wasn’t a budget in the traditional sense, with its brandishing of red briefcases and talk of beer tax going up 1p a pint. But the contents were no less momentous.
In the past four months, Covid-19 has wreaked a devastating toll on the global economy. In the UK, the pandemic has triggered the deepest recession in living memory; such is its predicted severity the OECD recently forecast the country will suffer the worst recession in the developed world.
The £30bn worth of measures introduced in Sunak’s statement are designed to steer the economy towards recovery as the UK emerges from lockdown, with the aim of offsetting the financial damage caused by the virus.
But what do these measures mean for AAT members, some of whom may have been furloughed or lost their jobs? Will AAT trainees/apprentices manage to carry on their careers as normal (supporting young apprentices and trainees constituted a large chunk of Sunak’s statement). And how will the accountancy industry in general be impacted by Sunak’s measures?
We canvas reaction from a panel of accounting experts.
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The furlough scheme
- Any employer that brings somebody out of furlough and keeps them in their job until 31 January will be paid a Job Retention Bonus of £1,000.
- To qualify, employees must earn above the Lower Earnings Limit (£520 per month)
Jane Norton FMAAT, director, Norton Accountancy: “The furlough scheme so far has been great for the economy, but a nightmare for accountants. The most frustrating thing is that clients don’t understand it – it’s not a simple process where some buttons are pushed and employees get 80 per cent of their earnings. [Because of this confusion] we’ve been working seven days a week, processing 3,500 cases a month.
This confusion looks set to continue. Every month, there’s a different claim. Every month, the rules are different. Also, the £1,000 won’t make a big difference to many clients. Unfortunately, many of them will be making redundancies; keeping somebody on for £1,000 simply won’t be an option for them. It’s not a reason to keep somebody on if they don’t actually need them.”
Ann White FMAAT, director, Abacus Accountancy: “The furloughing scheme has enabled many companies to survive in recent months, and this bonus will be a massive help for when the scheme winds down. The measures also mean that clients will need help [from accountants] when it comes to planning the next six months. This crisis has proved there’s still a big need for accountants: many practices have proved themselves when people and clients are in need.”
However, some people clearly think they can take advantage of the furlough scheme. I’ve had clients request to have staff furloughed, despite the fact all of their employees are working! Then there was the business-leader who wanted to put his wife on furlough. I think HMRC needs to see the value that accountants bring.”
Norton: “The government should be giving support to the accountancy industry to help process this. They’ve left us with all the work. They’ve got the PAYE records for every single company and could easily have put 80 per cent of an employee’s wages back through auto-enrolment. Instead, they’ve made it our responsibility. They want us to manage clients’ expectations, acknowledge their disappointment and explain to them why the Government won’t give them a grant. Because the government has advised people to contact their accountants, we now have an influx asking people why they’re not eligible for a grant, as if it’s our fault. Clients are emailing us wanting to know why £100,000 can’t be put into their bank account by tomorrow. It’s been hard.”
Apprentices and trainees
- Firms will receive a payment of £2,000 for each apprentice that they take on.
- Support will also be given to create jobs for those over 25. Any employer who takes on an apprentice aged 25-or-over will be given £1,500.
- The government has pledged £111m to its aim to triple the number of traineeships over the 2020-21 academic year.
- £101 million will be provided so that 18-19-year-olds in England can study Level 2 and 3 courses.
- Any employer who provides trainees with work experience will receive £1,000 per trainee. Young people are also promised more access to high-quality training with the government aiming to improve provision and expand eligibility for traineeships to those with Level 3 qualifications and below.
- There will also be more funding for careers advisers and more traineeships. Nearly £900m will be provided. The number of work coaches is also set to double to 27,000.
- Sunak says the measures were introduced because apprenticeships are effective: 91 per cent of apprentices stay in work or do further training afterwards.
Dawn Clarkson FMAAT, director, Clarksons Accountants: “I’ve built my business using apprentices, so I think it’s fantastic that the Government is endorsing this. The £2,000 is also a great incentive [for firms to take on apprentices]. It’ll definitely help these accountancy practices, as the apprentice will contribute to generating sales, bringing in extra revenue, plus their wages are covered to a certain extent.”
The Kickstart scheme
- Sunak announced the introduction of the Kickstart job creation scheme, which aims to support the jobs of young people.
- Any new employees aged 16-24 will have their wages subsidised by the government for six months.
- This grant will be worth around £6,500 per young person.
- The funding available for each six-month job placement will cover 100% of the national minimum wage for 25 hours a week. Employers will be able to top this wage up.
- £2bn will initially be provided, with no cap on the number of places funded.
Norton: “It’s mystifying companies will receive £6,500 for new employees, while only offering £2,000 for apprentices, especially when the Government is more likely to create permanent jobs through apprentices [something Sunak acknowledged when he cited the statistic that 91% of apprentices stay in work or do further training afterwards]. If the Government was going to give £6,500 for each apprentice, we’d probably take three of them on! Most accountancy practices would like their new employees to be trained: companies will be taking on new recruits and not training them. It’s an opportunity missed…”
Clarkson: “Many young people may be reluctant to go to university, especially in a big city, during the pandemic. However, if they get a job or apprenticeship in their hometown, where they’re not mixing with so many people, the Kickstarter scheme might have some bearing.”
A VAT cut for hospitality firms
- VAT will be cut from the current rate of 20% to 5% for the next six months for businesses working in food, accommodation and attractions. The cut will last from 15 July 2020 until 12 January 2021.
- There will also be a “eat out to help out discount” to encourage consumers to spend at restaurants and cafes. Meals eaten at any participating businesses will receive 50% off up to a maximum discount of £10 per head for everyone. The scheme is available on Mondays-Wednesdays during August.
Norton: “The VAT cut won’t cause any admin headaches for accountants, as most software programmes such as Xero or Sage can deal with it.”
Clarkson: “If hospitality starts to get busy and needs some support, accountants’ workload is set to increase. We’ve spent a lot of time over the past few months speaking to clients on the phone or on Zoom, making sure that they’re okay and claiming everything that they can from the government schemes and loans. We can expect that to continue with hospitality clients asking whether they are claiming for the right things, or advice on how to change their VAT. Overall, the measures should be positive: we work in a rural area, and the impact of the hospitality/tourism restrictions has been severe; many businesses have closed or made staff redundant. I’m glad that Rishi Sunak has addressed this.”
Clarkson: “It’s good to see that Rishi Sunak has addressed this. Hospitality companies will need to make a decision if they want to keep their prices the same. If they do, they could be better off thanks to this scheme, depending on their footfall.
Final thoughts/ What was missing
Norton: “Supporting and creating jobs is great, but the government also needs to incentivise people to become entrepreneurs and start their own businesses. It would have been nice to see corporation tax lowered for small businesses.
White: “There was no mention of statutory sick pay. If employees are sick and need to self-isolate for two weeks, many have been asked to put on furlough rather than sick pay, so they receive the maximum amount. Given the threat of a second wave of coronavirus, I think many people may not want to self-isolate because they can’t afford to do it once the furlough scheme has ended.”
Clarkson: “For us accountants, it’ll create more work. One year ago, our business was 75% accountancy and 25% business advisers. Now, because we’re giving more advice, especially on cashflow, we’re 50% accountancy, 50% advice. At times, our job is almost bordering on HR: encouraging business-owners to speak to their employees and not make knee-jerk reactions. The months ahead will show accountants that our clients need us now more than ever. Understanding what makes them tick will be essential.”
Christian Koch is an award-winning journalist/editor who has written for the Evening Standard, Sunday Times, Guardian, Telegraph, The Independent, Q, The Face and Metro. He's also written about business for Accounting Technician, 20 and Director, where he is contributing editor.