The Financial Impact Test for large businesses claiming the JSS (Open) may have a big and obvious flaw
On 22nd October the Chancellor announced revisions to the Job Support Scheme (JSS) including separation of the scheme into the JSS (Open) and JSS (Closed).
The JSS (Open) scheme is intended for businesses who are now experiencing reduced demand, but who are not closed due to legal requirements. A simple example of that would be in England, businesses in Tier 2 restrictions may qualify for JSS (Open) whereas businesses in Tier 3 restrictions may have to shut by law and so may qualify for JSS (Closed).
For businesses in the North East of England, currently Tier 2 applies and so JSS (Open) may be applicable. The same applies in London, for example. However, to use JSS (Open), businesses with more than 250 employees have to also assess a new Financial Impact Test and that test has to be taken before the businesses can use the JSS (Open) scheme which will apply from 1 November 2020 (until 30 April 2021).
The test tries to look back at the prior year to see if the income (read : turnover) has dropped for the business and uses turnover declared on VAT returns to carry out that assessment. The VAT return period comparison is for VAT returns where the returns are due to be filed and the VAT paid between 31 August 2020 and 7 November 2020. This is essentially the VAT quarters ending July, August or September 2020. For many businesses, it will be the quarter ended 30 September 2020, so will be the period covering July, August and September 2020.
We think that there is a significant issue with the approach being taken here as using the turnover figure will produce unintended results. Many businesses actually grew in the reference period compared to 2019 but have now retrenched significantly again.
Bearing in mind the industries which are most likely to be affected by the new restrictions which have gradually rolled out in October 2020 are typically hospitality sector based, these are exactly the sectors who are now being severely curtailed, but who were being artificially boosted over the summer months by a combination of staycations and Eat Out to Help Out. Using the VAT returns required in the JSS (Open) guidelines may preclude some hospitality (or supply chain) businesses altogether who are now struggling within a Tier 2 restriction. It could also mean that large hospitality businesses whose quarter end was July 2020 can qualify whereas those with a quarter end of September 2020 do not – simply due to which three month period the VAT return is reporting.
The graph below (source: Statista) illustrates the point regarding which three month period is used making a significant difference. That reference period may cause businesses to fall outside qualification due to measurement over an artificially good summer period but where those same businesses now may be trading substantially below the prior year.
Using the summer months from 2020 compared to 2019 as a reference period may be exactly what precludes from JSS (Open) the businesses who are now suffering badly as we move back into a sustained period of restrictions. Equally, a business which has expanded after the summer of 2019 but then has a larger number of outlets performing at a lower level overall may also find it is also precluded as turnover has increased due to expansion. As the VAT figure is that for groups if a VAT group is in place, it might simply be that a new company has been added to the group.
Finally, the “box 6” figure from a VAT return can also include things which are not sales (e.g. reverse charge items) and so there may be transactions included within box 6 which do not in fact relate to sales to customers.
We think the Financial Impact Test, whilst well intentioned, will cause businesses to fall outside the JSS (Open) simply because actions of the Government over the summer months meant that they were in a recovery mode in that period (and potentially due to stimulus measures which were intended to “Help Out”). Measuring based on turnover in a VAT return will cause either unfair results or businesses to have to try to enter into discussions with HMRC when what they need is quick assistance. Ultimately this is supposed to be about helping retain jobs, not causing arbitrary outcomes.
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