Furlough support scheme ends

The UK’s furlough support scheme, introduced in March 2020 and helped pay the wages of 11.6 million workers after Covid-19 forced large parts of the economy to close, is to end today (Thursday 30th September).

HMRC figures indicated that at the end of July it was still supporting the incomes of around 1.6 million workers.

The Coronavirus Job Retention Scheme provided 60% of the wages of furloughed staff up until the end of September, with around a fifth of employees in businesses with 2 to 4 employees still on full or partial furlough in early September, according to HMRC. Small businesses have been far heavier users of furlough than large firms, reflecting the disproportionate impact of the pandemic and restrictions on smaller firms – and the gap has grown as the scheme has neared its end.

The end of the furlough scheme coincides with the VAT rate rise for hospitality and tourism businesses rising to 12.5% from 5% as of 1st October.

The restrictions on the issuing of winding-up petitions, a common trigger for corporate insolvencies, also expires although the threshold for the debt that a company must owe to its creditors before a WUP can be issued against it has been raised to £10,000, from its pre-pandemic level of £750, until 31 March 2022. Creditors will also be required to give debtor companies 21 days to respond to a WUP with payment proposals during this period.

Commenting on the changes Mike Cherry, National Chair of the Federation of Small Businesses (FSB), said “For many small businesses, the end of September will mark a significant turning point. With challenges on many fronts, from rising energy and input costs to staff shortages and supply issues, the removal of some of the support measures brought in to hold off the worst effects of the pandemic on businesses will be tough for many to navigate.”

“It’s potentially a dangerous moment. As the weather turns colder, so too will the operating environment for many firms. With recent economic growth numbers having fallen below expectations, the upcoming festive season may not provide as much of a boost as hoped to many small businesses’ bottom lines.”

“We all know that the unprecedented support to businesses and individuals which the Government provided to forestall a full-on economic collapse could not last forever, and that some sort of ‘business as usual’ would need to be resumed. But the Government needs to think carefully about the signals it wants to send to the business community. The memory of how National Insurance and dividend tax rises were pushed through Parliament with no time for proper scrutiny is fresh in every business owner’s mind, and has dealt a significant blow to stores of goodwill.  The prospect of huge jobs tax increases now hitting in April will lead to an extra 50,000 people joining the unemployment line.”

“The skills shortages in many sectors are continuing to bite – not least in tourism and hospitality, which will have to factor in a higher rate of VAT as of tomorrow. Ending the Apprenticeship Incentive sends exactly the wrong signals to the business community about the Government’s commitment to training and skills development. If anything, we need even more apprenticeships in small businesses as we come out of the pandemic. Add in the rumoured axeing of the New Enterprise Allowance, and the implied message about the value placed on nurturing entrepreneurship is equally bleak. It seems bizarre that at a time when we should be starting the long road to recovery, the Government is making employment more expensive, making it harder to start a new business, and making apprenticeships less attractive and accessible.”

“The easing of restrictions on winding-up petitions is thankfully unlikely to lead to a flood of corporate insolvencies, due to the mitigation policies in place until next March. However, it is still a potential wake-up call to businesses struggling with debts, and we hope that creditors of all kinds will show forbearance wherever possible.”

“Firms feel assailed on all sides, from energy prices and fuel shortages to longer-term changes to taxes which will disincentivise growth and investment.  Small businesses need to feel the Government is on their side; however, recent decisions made have not had their interests at heart. They will be looking to the Conservative Conference and later to the Budget for signs of positive support, rather than closing schemes and hiking taxes. Increasing the Employment Allowance, and rejuvenating the New Enterprise Allowance, would be good places to start.”

Cameron Gunn, Senior Partner at ReSolve said “The Government’s furlough support is finally coming to an end, however the fates of the 1.6 million people who are still on furlough would have been sealed some time ago. Business owners who have been using this government support scheme will have been considering for months what to do with their furloughed staff – keep or let go.  A difficult decision to be sure as it can have great bearing on a business’s financial health and overall success. For best results, this decision needs to be based on how the directors envision the company performing in the near future, cash burn and, in light of the hiring crunch, the probability of being able to find staff at a later date.”

 At ReSolve, we commend the UK Government for its unwavering support of SMEs during Covid-19 as well as SME owners who have adapted to Covid-19’s unpredictability as best as possible. Those businesses that survived the worst and are well poised to thrive are the ones that carefully reviewed their books and negotiated, rescheduled, refinanced, and perhaps even restructured, their affairs.”

Chirag Shah, CEO, Nucleus Commercial Finance said “The end of the furlough scheme will undoubtedly have a significant impact on business up and down the country. The scheme has provided a lifeline to SMEs when they most needed it, allowing them to continue operating while preventing the UK from a major unemployment crisis.”

“Although the outlook is more positive than it has been for some time, we’re not over the worst yet. The scheme’s end could leave many SMEs struggling to survive and exacerbate the financial and mental health challenges many business owners have faced over the last 18 months.

“Moving forward, government and industry must work together to communicate the support available to SMEs and demonstrate how they can help businesses thrive beyond the pandemic. This is where the alternative finance industry has a crucial role to play, in providing businesses with the flexible finance they need at speed, to help them deliver on their ambitions.”

Supperstone, continued “With the end of the winding-up petitions moratorium we expect a major uptick in petitions by creditors trying to force indebted businesses into liquidation if they have debts of £10,000 or more owing. With all of the complications and challenges of Covid-19, a petition is the last thing a business owner wants because, once received by a court clerk, it impedes a business’s ability to invest in itself, stifling growth and trading, and leading to an increased risk to the directors.”

 “There are various options for business owners to consider today however those who prepared for the end of the moratorium by speaking with their creditors will be in an enviable position. It sounds deceptively simple but a little communication goes a long way. Some creditors may take an aggressive stance but the majority will be forgiving and understanding, and willing to be patient with back payments, as long as they’ve been apprised of the situation ahead of time.”