Coronavirus Economic Forecast

Coronavirus and the economy, the news was not good.

On Wednesday in the House of Commons, the Chancellor made a major speech on Coronavirus and the economy and the news was not good.

Rishi Sunak set out what the UK government will spend on health, education, transport and other public services next year. He also briefed MPs about the state of the UK economy and the latest forecasts for the UK’s public finances, which have been battered by the Coronavirus pandemic.

Coronavirus Economic Forecast: What were the main announcements?

This was not a Budget, but a statement on just how bad things are and what could be expected in the coming months. The key points:

1. Around half of the public sector workers will see their pay frozen in 2021-2
2. A million NHS workers and those earning less than £24,000 will still get an increase
3. The UK economy is expected to shrink by 11.3% this year
4. Unemployment is expected to reach 7.5% next spring, with 2.6 million people out of work
5. The overseas aid budget is to be cut by about £4bn
6. The economy set to contract by 11.3% in 2020, the largest fall for more than 300 years
7. Economic growth is predicted at 5.5% for 2021 and by 6.6% in 2022
8. Output not expected to return to pre-crisis levels until the fourth quarter of 2022
9. Unemployment is expected to reach 7.5% next spring, with 2.6 million people out of work
10. Borrowing forecast to hit £394bn this year, equivalent to 19% of GDP, the highest ever in peacetime UK debt will be equivalent to 91.9% of GDP this year and rise to 97.5% of GDP in 2025-26

So, is there any positive news? Well not a lot, but a little digging into the small print provided a couple of nuggets of good news.

Coronavirus Economic Forecast: Double VAT avoided

This potential major issue is over Post-Brexit digital supplies of electronically supplied services such as any electronically supplied business services, telecommunications services, financial services and radio and television broadcasting services.

There was a real danger that most of these digital supplies would suffer a double VAT charge, from January 2021 after the transition period for leaving the EU. However, HMRC have now confirmed that these types of transactions will escape VAT completely, which is great news for many businesses.

Coronavirus Economic Forecast: Employee Covid-19 antigen tests

A rule that exempts workers from paying income tax and NIC on Covid-19 antigen tests purchased by their employers enters force on December 8th, the Chancellor has confirmed.

In July, the government was forced into a U-turn after initially planning to introduce a taxable benefit in kind when their employer paid for coronavirus testing, reducing take-home pay of any liable worker. The legislation has been introduced to make sure that employees who are given an antigen test by their employer, will not be liable to an Income Tax Benefit in Kind (BiKs) charge. The temporary exemption applies to any relevant Covid-19 antigen test provided by an employer on or after December 8th, 2020 and will be in force until at least April 5th, 2021.

Many voices, including Treasury select committee chair, Mel Stride, complained that the proposed move was unfair and could discourage workers from getting checked if it meant their tax bills were higher. The outcry forced chancellor Rishi Sunak to relent and reverse the plan. “Given the importance of widespread testing, the government wants to ensure that all employers who wish to provide testing to their employees can do so without increasing their tax liability,” the chancellor wrote in response.

“We are therefore introducing a new income tax and NIC exemption from income tax for employer-provided Covid-19 antigen tests.” He went on to say that for any tests which were provided earlier in the tax year, i.e. before December 8th, HMRC has been instructed to refrain from collecting any Income Tax or Class 1A National Insurance contributions due on the provision of these earlier tests.

Coronavirus Economic Forecast: HMRC confirms virtual Christmas party exemption

2020 is a year when an employer’s ability to say thank you to their employees has never been more important. But the Coronavirus lockdown restrictions have put a stop to the annual office party and have forced employers to think of alternative ways to wish employees a happy Christmas and to boost morale.

There is a little known HMRC allowance for employers to host an annual event. This is generally done over the festive season, but it doesn’t have to be at Christmas, it could be held at any time of the year, the key here is that it is an annual event and is made available to all employees (plus their partner), at a cost of up to £150 per head. This is allowable against tax for the employer and is not deemed to be an Income Tax Benefit in Kind for the employee, so a win-win situation.

This year, however, with parties effectively banned, HMRC have donned the robes of Father Christmas and have said they will allow the annual function virtually using IT, such as Zoom. All employees and their partners are invited, and each is provided with a hamper consisting of some food and drink to be enjoyed by the attendees during the party, providing that the cost of the hamper is within the £150 exemption.

So three cheers to HMRC!

Accountancy student takes Bake Off crown

And finally, an uplifting story, with the final of the Great British Bake Off seeing budding number-cruncher Peter Sawkins take home this year’s winning title.

In the midst of such a taxing year, the Bake Off has brought a glimmer of normality and comfort to people’s lives each week. The annual baking show could have easily decided to forgo their 2020 return, but they went that extra mile and created a biosphere bubble to keep the cast and crew safe for the entire duration of the competition.

The Bake Off was the sweet treat the country had been craving all year, and this week’s final did not disappoint. This week’s final came down to the wire, with accountancy student Peter Sawkins just squeezing over the line with his final showstopper.

This pretty much lays to rest that old cliché that all accountants are boring!
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