Furlough bonus and VAT cut in hospitality announced by the Chancellor

Earlier this year, the government took action in a bid to ‘keep people in work, protect their incomes, and support businesses’ by introducing the Coronavirus Job Retention Scheme, the Self-Employment Income Support Scheme (SEISS) and various other government-backed schemes to UK businesses and workers.

The UK economy has fallen at its sharpest rate in 41 years during the coronavirus pandemic, contracting by 2.2% in the first three months of the outbreak. As data starts to show that cases in England are beginning to fall, lockdown rules are gradually being eased and the UK economy has started along the road to recovery. 

This week, Rishi Sunak set out his plans to support this recovery and protect jobs by encouraging businesses to retain furloughed workers.

The Chancellor said, “We haven’t done everything we have so far just to step back now and say, ‘job done’. In truth, the job has only just begun”. 

This announcement was supported by an accompanying policy paper, entitled ‘A Plan for Jobs 2020’, which documented some of the key updates. 

Here's an overview of two of the key messages from the statement: 

Furlough Bonus 

The introduction of the Coronavirus Job Retention Scheme was intended as a lifeline for struggling businesses who weren’t able to trade during the pandemic. After extending the scheme until October 2020, Sunak quashed calls to extend it any further. 

He announced that the government would be “introducing a new policy to reward and incentivise employers who successfully bring furloughed staff back – a new Jobs Retention Bonus”. 

The purpose of the bonus is to incentivise businesses to bring back their furloughed staff in exchange for a £1,000 bonus for each employee brought back before January. 

In order to qualify for any available funds, any employees must have a wage of at least £520 on average, each month from November to January 2021. 

Although business owners will no doubt be grateful for the bonus scheme, there has been some discussion around its potential impact. HMRC's CEO Jim Harra has suggested a bonus for bringing back furloughed employees may not be cost-effective in light of the amount of uncertainty currently surrounding the number of people likely to return to work.

Hospitality sector VAT cuts

The Chancellor also announced plans to support the hospitality and tourism industry, which is among one of the hardest-hit areas of the UK economy. 

From Wednesday 15th July, VAT in the hospitality sector will be reduced from 20% to 5%. The new rate will be in effect until 12th January 2021. 

This reduction in VAT is intended to support struggling areas like pubs, restaurants, cafes and B&Bs and it will apply to food items and non-alcoholic beverages, 

The reduction will also apply to key attractions such as cinemas, theme parks and zoos, although exact details are set to follow shortly.