Wow, it has been quite a week and I appreciate that we have been sending quite a few newsletters with updates so we thought we would summarise where things are here. In addition, we have provided more detail below this regarding furloughed employees and finally provided an update regarding accessing the government grants.
The Chancellor has set out a package of temporary, timely and targeted measures to support public services, people and businesses through this period of disruption caused by COVID-19.
This includes a package of measures to support businesses including:
- a Coronavirus Job Retention Scheme
- deferring VAT and Income Tax payments
- a Self-employment Income Support Scheme
- a Statutory Sick Pay relief package for small and medium sized businesses (SMEs)
- a 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in England
- small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief
- grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
- the Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs through the British Business Bank
- a new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans
- the HMRC Time To Pay Scheme
More detailed guidance around each of the areas above can be found here
Furloughing Employees Update from HMRC
What is it?
It is a grant for employers to help fund employee wages, where certain conditions are met, that has temporarily been put in place for 3 months initially, but this may be extended.
Note that this is a grant and not a loan, so it will not be repayable.
Which Businesses can claim?
- It is open to all UK employers who have created and started a PAYE payroll scheme on 28th February 2020
- Any UK organisation can claim it is not based on profits but business must have a UK bank account
- Special rules apply to those public sector employers, who are funded primarily from public grant funding, mainly as they are expected to still be delivering a public service. Please do seek further guidance around this area though if you think it might impact you.
Which employees are eligible?
- To claim for an employee that you decide to furlough, they must have been on your payroll as at 28 February 2020 and this is includes various types of contract such as full time, part time etc.
- We understand the furloughing of employees can be done on an individual basis, however, you need to be aware of employment law, particularly around discrimination.
- The scheme also covers employees who were made redundant after 28 February 2020, as long as they are rehired by their employer.
- Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February.
- Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this, whilst employees who are shielding in line with public health guidance can be placed on furlough.
- If the employee is on maternity leave and receiving maternity pay, SMP or maternity allowance, this will continue. However, if you top the statutory payment up this can be claimed back through the furlough scheme as long as both parties agree; this also applies to other statutory payments such as Statutory Adoption Pay
Employee salaries and entitlements
- During the furlough period the employee’s wages will still be subject to the normal income tax and national insurance deductions etc
- If your employee reduces their hours, then they are still deemed to be working for you, so the scheme will not apply.
- If your employee has more than one employer they can be furloughed for each job. Each job is separate and the cap applies to each employer individually based on current guidance.
- A furloughed employee can take part in volunteer work or training, as long as it does not provide services to, or generate revenue for, or on behalf of your organisation.
- Employees that have been furloughed have the same employment rights as they did previously.
- The government has also announced changes to carrying over annual leave, allowing workers up to 2 years to take unused holiday, for more info click here.
Making a claim
- Employees will have had to have been furloughed before any claim can be made.
- The reclaim amount which will be repaid into employers’ bank accounts by BACS, that is likely to be in arrears, can be up to 80% of an employee’s regular wage plus on-costs up to a maximum amount of £2,500. Therefore a maximum amount that can be claimed is £2,500 salary plus on-costs for employer’s National Insurance and the required minimum pension contributions. Employers will need to pay 80% of normal, regular salary without bonuses, commission etc. included or £2,500 whichever is lower. We are awaiting further guidance from HMRC on the calculation of the NI and pension contributions on the subsidised wages paid, so expect further updates on this one.
- There are a couple of calculation methods for those on variable pay, either the same month’s earnings in the previous year, or average monthly earnings for the year (pro rata for less than a year)
- As a worker will have been furloughed National Minimum Wage and National Living Wage will not be relevant unless training is being undertaken whilst furloughed
- Once the scheme has been closed by the government, HMRC will continue to process remaining claims before terminating the scheme
- Payments received by a business under the scheme are made to offset these deductible revenue costs and thus will be taxed as income.
- Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.
- There are a number of data items that HMRC will require when making a claim via their portal. It isn’t yet clear what the portal might look like, or the format required for the data.
If you would like to share guidance with your employees to help them understand this legislation, please ask them to visit: https://www.gov.uk/guidance/check-if-you-could-be-covered-by-the-coronavirus-job-retention-scheme
Some further queries you might have
Do employers have to backdate the 80% March payment values in April payroll/tax year 2020/21 or does it all have to be completed on the March payroll tax year 2019/20?
Currently, our understanding is that furloughing applies from the date that you notify your employees that they are being furloughed, not the date that you make the payments. Our suggestion would be to notify your employees now that you intend to furlough, with the amount that you intend to pay. Naturally guidance around this might change and we always recommend you take professional HR advice around this.
If a worker is furloughed, can they be brought back into work early if say work commitments change?
Yes, we believe you can bring back your employees early but again take HR advice around how this is worded to enable the option to be considered at some point during the period of being furloughed.
For owner/Directors who are on the payroll, will they be treated as employees or self-employed?
Legally, directors of a limited company are employees and should be treated as such. Like employees, any claim will be based in the same way BUT WILL NOT take account of any dividends.
If it is a single director company, are they eligible for this scheme?
Based on the latest ICAEW interpretation of the HMRC guidance; as HMRC are silent on this matter, they too are eligible and can make a claim provided they meet the same eligibility criteria that other employees need to meet.
Will you guys help us out as a business when this scheme is launched fully?
Of course we will and just watch out for further guidance coming but we will coordinate this all as part of the payroll process.
For those clients that handle payroll themselves internally, we will also help you through the same process if you wish so you’re not alone.
Any further questions that you might have which are are not covered above; and any action taken regardless, we always suggest is taken with the sign off of a qualified HR person with the above to act as a guide as to what can be interpreted from what HMRC has issued. Use this accordingly to plan ahead, we will keep things right with regards to the declaration and reclaiming of amounts from HMRC then; you alongside an HR expert, can ensure the paperwork and implementation side of things can be handled correctly.
Don’t forget, as clients of ours, you have access to unindemnified advice from the HR team at Avensure or you can contact ACAS whose details are here.
As local authorities start to develop varying strategies around issuing the grant funding being provided by the Government, we suggest all businesses who feel that they meet the eligibility requirements contact their local councils through their websites to lodge a claim.
The links for Newcastle, North Tyneside, South Tyneside and Northumberland Council Councils can be found below: