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The End Of Furlough – What’s Next?

It’s official, furlough payments are ending soon and will be replaced by the recently unveiled Job Support Scheme. What does this mean for your business? And how can you make sure you keep your business’ cash flow healthy as the UK (and world) continues to deal with the uncertainty of the coronavirus pandemic? If you’re wondering what’s next for your cash flow, read on to find out the best way to prepare your business for the changes ahead.

The coronavirus pandemic has sent shockwaves across the world, and the UK government has responded by offering a number of schemes designed to support businesses struggling with cash flow problems and to bolster the economy.

Since the start of the pandemic, support has included loans such as the Coronavirus Business Interruption Loan Scheme (CBILS), the Bounce Back Loan Scheme (BBLS) and the Coronavirus Job Retention Scheme – also known as the furlough scheme. Now Rishi Sunak has unveiled plans for the Job Support Scheme, which aims to replace the furlough scheme from 1st November.

At this complex time, many businesses have turned to cash flow forecasting to help navigate their way through the pandemic. In this article, we’ll explain how you can use forecasting to prepare your business.

What was the furlough scheme?

The Coronavirus Job Retention Scheme saw businesses across the UK putting their employees on furlough, where 80% of their wages were covered by the government. It’s estimated over 1 million businesses and 9.3 million employees benefitted through the scheme which was designed to support them throughout the coronavirus pandemic and its accompanying lockdown measures. Through the scheme, businesses were able to claim 80% of their employees’ wages, plus National Insurance and pension contributions, from the government. This meant businesses could keep employees on the payroll without them working. Under the scheme employment law remained unchanged.

The scheme started in late March 2020, however in June the UK Government set out a timeline for the winding down of the furlough scheme. A flexible extension was introduced to the furlough scheme, known as the Flexible Furlough Scheme (FFS). From 1st July the new scheme aimed to further support businesses severely affected by coronavirus during a recovery period. On flexible furlough employees could work a proportion of their usual hours and put on furlough for any hours they didn’t work.

The UK government announced the furlough scheme would end in late October 2020. From August the level of government support has been slowly tapered, with employers contributing on an increasing basis to make sure their employees still receive 80% of their usual salary.

end of furlough timeline

What is the Job Support Scheme?

Immediately following the end of furlough, businesses will be able to access the Job Support Scheme for six months from 1st November 2020. The new scheme is designed for SMEs or larger firms that can prove their revenue has fallen as a result of the coronavirus pandemic. Under the scheme, the government will top up a salary when a business cannot afford to take back an employee full-time.

To be eligible for the scheme, employees must work at least a third of their normal hours and the government and employer will each pay one-third of the remaining wages. The employee must have been on the business’s payroll since 23rd September 2020 and support payments will be capped at £697.92 per month. Employees can be made redundant under the new scheme, and businesses cannot use the money from the scheme to subsidise any redundancy packages.

What additional job support is available?

On 8th July, the government announced the Job Retention Bonus as part of its Plan for Jobs 2020 with a view to improve job retention and boost the economy following the easing of lockdowns across the UK. Under the new scheme, employers receive a one-off payment of £1,000 for each employee they bring back from furlough and employ continuously until January 2021.

Additionally, the UK government plans to offer:

  • £1,500 for each 16-24 year old given a 6-month work placement
  • £1,500-2,000 for apprentices taken on until the end of January 2021

Is there industry-specific support?

In addition to the above, there are a number of industry-specific initiatives designed to help businesses emerge from lockdown.

  • Construction Talent Retention Scheme – in a joint initiative between government and the construction industry, this scheme aims to redeploy staff who are at risk of redundancy. The scheme will also welcome workers from other sectors who are new to the construction industry. You can register your interest here
  • VAT cut for hospitality sectorhospitality businesses such as restaurants, cinemas, tourist attractions and hotels will benefit from VAT being slashed from 20% to 5% until January 2021
  • Office for Talent – the government also plans to help leading researchers and scientists work in the UK post-Brexit
  • Public Sector Decarbonisation Scheme – schools and healthcare providers will be able to apply for grants for low carbon heat upgrades and support to become more energy efficient
  • Green Jobs Challenge Fund – charities and non-profits can benefit from this £40m fund that’s been created to protect 5,000 jobs in England
  • Automotive Transformation Fund – manufacturing businesses involved in automotive technologies can tap into the £10m fund the government has recently made available to support the industry
  • Short-Term Home Building Fund extension – small and medium-sized construction businesses can access a pool of £450m additional funding, particularly home building companies which use ‘Modern Methods of Construction’

What does the end of furlough mean for my business?

If you’ve had your staff on furlough, you may be feeling understandably concerned about reopening and confused about the best way to bring employees back whilst balancing the books. It’s a delicate balance to strike, and having a good handle on your cash flow will empower you to move into this new phase with confidence.

Bringing staff back from furlough may be challenging, even with the recently announced government support. Some employees might not want to return due to childcare issues or health concerns, whilst others might prefer to return with only part-time hours. On the flip side, you may feel like your business no longer requires certain roles to be filled and it could be time to start considering making redundancies.

Sharon Brown from Magic Beans highlighted the concerns many of her clients are experiencing: “the main impact that I can see with furlough ending and the new Flexible Furlough Scheme (FFS) means the clients are looking at more ‘what if’ scenarios and they want to know exactly what their employment costs will be over the next few months. What if staff don’t come back until October? What if staff come back part-time? What if all staff come back and then sales are low? When will we run out of cash?”.

The guaranteed income from furlough payments ending means you will also have to plan for worst-case scenarios such as poor sales, low income and running out of cash.

“The reduction in the furlough payouts will impact all businesses,” Emma Fox from Fresh Financials added. “With July furlough staying the same I think most (redundancy) conversations will be happening late July or early August when they can see how sales are performing and the impact on cash flow.”

Scenario planning for the Job Support Scheme

The key to adapting to the end of furlough payments and the new Job Support Scheme is to plan ahead. Businesses that will emerge from this crisis and thrive are those that have a clear view of their runway and use cash flow forecasting to guide their decision-making.

Using Float’s scenario planning feature you can prepare for a number of different potential scenarios and see how various decisions could impact your business.

GIF showing moving cash flow graph

Accountant Lauren Harvey told us about one of her creative agency clients who is using scenario planning to create a plan of action to get their business back on track. “At the moment they are sat on a lot of cash, and we want to make sure they can see what it’s going to look like once these projects are spent,” Lauren said. The accountant is also encouraging all her clients to use Float to keep track of their VAT, tax and PAYE liabilities, particularly those who have deferred.

At the best of times, scenario planning is a good way to stress-test the finances of your business. But at the moment, it’s an invaluable tool to help you preempt any pitfalls the decreasing support and the end of furlough payments could bring. Scenario planning can help you make tough decisions, like making layoffs, with a clear head to keep your business afloat.

As well as staff costs, your scenarios can also take into account changes in income and cash injections from government or bank loans. Planning further ahead, remember you’ll also have to plan to pay these loans back eventually.

We understand this is a daunting time for businesses in the UK and further afield, but with careful cash flow forecasting, you can move your business into the next phase ready for recovery.

Visit our COVID-19 Hub to find out more ways Float can support you right now, and sign up for free 14-day trial of Float cash flow forecasting software today.

Further reading:

How Scenario Planning Can Help Your Business

How Will Making Redundancies Impact Your Cash Flow?

Louise Bayley-Boyd

Content Manager and digital enthusiast, fuelled by coffee and horror films.