The furlough scheme has been a lifesaver for businesses and their workers. But certain sectors will suffer as the Government reduces its contribution.
- People-focused sectors, such as hospitality, won’t have the funds to pay additional costs as furlough phases out
- More sectors at risk in the result of a second wave
- Furlough scheme still praised as an essential lifeline
Details of the next phase of Coronavirus Job Retention Scheme (CJRS) were revealed last week by the Chancellor.
Revised guide to the Coronavirus Job Retention Scheme
Read our comprehensive Knowledge Hub guide to the changes to the scheme and how they need to be applied (members only)
They were largely welcomed by accountants, but concerns were raised over the impacts on some businesses as the scheme phases out.
Part-time furloughing will be brought in from 1 July, which will allow firms to bring in enough resource to complete work without incurring costly inactive days. The 80% furlough rate will last until August. After that time, it will phase out as follows:
- August: the Government still provides 80% of wages, but employers must start paying National Insurance and Pension contributions (around 5% of employee costs)
- September: the Government provides 70% of employee wages, with employers making up the other 10%
- October: government contributions reduce to 60%, with employers paying 20%
For those businesses that see work picking up, this is a manageable phase-out of the CJRS. However, for certain sectors, it may prove to be unsustainable, and they may struggle to adapt to the changes. A second wave of Coronavirus could cause issues for many more businesses unless Government re-introduced the 80% rate. Accountants give their views on the good and bad to be found in the furlough phase-out.
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Furlough can’t go on forever – but as it phases out, we could lose sections of the economy
Henry Cooper, managing partner, Birch Cooper
The furlough claim is now part of business as usual, so from a practical point of view, the phase-out shouldn’t cause an issue.
From a monetary perspective, it will be hard to prepare for.
Businesses that can’t open, such as hospitality businesses, are going to really struggle. There may need to be more flexibility in the scheme depending on the sector. Some sectors will bounce back really easily, but if you’re a firm that cannot get the revenue in, you may need help for a longer period of time. We could lose whole sectors of the economy, here.
Take a hospitality business that has furloughed all of its staff, paid them their full wages with its fingers crossed. As the reductions start to kick in, what are they going to do?
There’s going to be a big funding gap between what they can afford to pay employees and what’s coming from the Government. If their business is still a non-starter, I’m not sure what they’re going to do. I think it will put some people out of business.
The flexibility side is good for some firms; if they get more work in, they can bring back more staff for a certain number of days. We have some mechanic clients who could have done with more flexibility in the scheme earlier on.
From the country’s perspective, this can’t go on forever – something’s got to give at some point. In that respect, I think phasing out furlough is the right thing to do, but whether it’s too early or not, only time will tell. If there’s a big second wave of this and there’s another lockdown, what will happen then? Will they go back to the full furlough or not?
Next steps: Help clients make a plan for the furlough phase-out, and identify the businesses that may struggle as government contributions reduce.
Verdict: Some sectors are not ready for the CJRS to end. While it needs to end at some point, it could have catastrophic consequences for some businesses.
The extension is great news, but it’s not easy to implement
Farha Jamadar, finance manager, Todd Doors
The furlough scheme has been amazing. It’s great that it has been extended.
As a company in the retail sector, we do not know what the lasting effects of this will be. If we’re lucky enough to survive this, will everyone else?
It could create issues with our supply chains and products. Phasing out the scheme allows employers to use the Government’s aid to test the waters and change gears, to make operating in a post COVID-19 world possible. So on the face of it, it’s really helpful for us to navigate these uncertainties.
However, the execution and administration is proving to be harder for finance managers and accountants. My concern is that once the legislation is in place, there will be areas that aren’t clear.
The reporting platform is very time consuming and not automated for the submission of information.
I fear that with all these complexities, it will be harder to calculate and submit. Mistakes will be made. I feel HMRC should dedicate some initiative to error-checking or produce calculators to ensure you are calculating this correctly.
There is a month left in the current scheme, so we do have time to review and implement.The fear of submitting wrong information and repercussions leading to this is ultimately our responsibility, juggling this alongside ensuring your company keeps afloat is a hard balance to find.
Next steps: Try to keep up with the changes as more details are announced. Use the time before the CJRS rate reduces to plan accordingly.
Verdict: The extension is a great thing, but it might be tricky to implement as businesses struggle with their day-to-day.
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The phase out will push businesses to assess their plans
Andy Sullivan, founder, Complete HQ
I understand why the Government is trying to put the burden back onto the employer a little bit. It’s pushing businesses to assess their plans for the future and work out whether they are over-resourced. It gives them a little bit of a chance to put those plans in place now.
If the scheme goes on much further than it already has, we’re going to find ourselves in a very big black hole. I think October will probably be when we will see a Budget, so it will be interesting to see if any new tax measures will be announced then.
For the business world, it’s been a great support. I think Rishi Sunak has performed very well, and I know a lot of accountants that agree with me.
Business as a whole do see that, although there are issues around new staff and directors not being able to claim for their dividends. But they’ve covered off 80-90% of the economy in two to three months. For once, HMRC did a really good job of rolling out the schemes that they needed to implement. With the hand they’ve been dealt, the Government has one a pretty good job of supporting business.
Next steps: Be very hands-on with planning and forecasting, and reassure clients that they should often trust their gut instincts.
Verdict: The CJRS has to end, and will encourage businesses to start planning ahead.
Revised guide to the Coronavirus Job Retention Scheme
Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.