Following our last update, the government have now updated their guidance on the Coronavirus Job Retention Scheme (also referred to as Furloughing) which can be viewed here:-
The government also made an announcement with regards to Self-Employment.
We thought it would be useful to share our understanding of the Coronavirus Job Retention Scheme and the proposals set out with regards to Self-Employment. Also update the queries we shared previously that we did not have information on.
Coronavirus Job Retention Scheme
Under the new Coronavirus Job Retention scheme, government grants will cover 80% of the salary of PAYE employees who would otherwise have been laid off during this crisis. The scheme, open to any employer in the country, will cover the cost of wages backdated to 01 March 2020 and will be open before the end of April. It will continue for at least three months and can include workers who were in employment on 28 February 2020.
To claim under the scheme employers will need to:-
Designate affected employees as ‘furloughed workers’ and notify employees of this change. Changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.
We would recommend you take legal HR advice for this. If you are a Rethink Accountancy client , we can get you specialist support from Markel.
Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. HMRC will set out further details on the information required.
While HMRC is working urgently to set up a system for reimbursement, we understand existing systems are not set up to facilitate payments to employers. Businesses that need short-term cash flow support, may benefit from the VAT deferral announced and may also be eligible to apply for a Coronavirus Business Interruption Loan.
Please contact the team on email@example.com if you would like to discuss your options in more detail.
Frequently Asked Questions…
What does “furloughed” mean?
Furloughed means allowing someone to be absent from work for a period of time.
Are the government going to pay my employees for me?
There seems to be a common misconception that the government will subsidise 80% of your team costs while they work for you. Not so – it’s only for people who you would normally make redundant in any other situation. They are in effect on “garden leave” and should not be doing any work during the “furloughed” period.
Surely they can do some odd jobs for me whilst they are off…?
No, once you are on furlough you will not be able to work for your employer, but you can undertake training or volunteer subject to public health guidance, as long as you’re not:-
If workers are required to for example, complete training courses whilst they are furloughed, then they must be paid at least the National Living Wage (NLW)/National Minimum Wage (NMW) for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
Can they go part time and benefit from this?
No. You’d be best making some of your staff full time and put others on garden leave.
Anyone on your payroll as at 28 February 2020.
What happens if they started in February 2020?
If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
How do you work out what they get 80% of?
Full time and part time:-
For full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February 2020 should be used to calculate the 80%. Fees, commission and bonuses should not be included.
Variable (including Zero hours):-
If you’ve been employed (or engaged by an employment business in the case of agency workers) for a full year, employers will claim for the higher of either:-
If you’ve been employed for less than a year, employers will claim for an average of your monthly earnings since you started work. The same arrangements apply if your monthly pay varies, such as if you are on a zero-hour contract.
Bonuses, commissions and fees are not included as part of your monthly earnings.
Does the NMW apply?
Individuals are only entitled to the NLW/NMW for the hours they are working.
Therefore, furloughed workers, who are not working, must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.
However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
Can I still pay full wages?
An employer can choose to top up to 100%, but does not have to (subject to employment law and renegotiating any contractual entitlements).
Can employees go in and out of Furlough?
If your employer chooses to place you on furlough, you will need to remain on furlough for a minimum of 3 weeks. However, your employer can place you on furlough more than once, and one period can follow straight after an existing furlough period, while the scheme is open. The scheme will be open for at least 3 months.
Can I be furloughed for a short period of time, e.g. a week or a couple of days, and then re-employed?
A worker must be furloughed for a minimum of 3 weeks for their employer to be eligible to claim under this scheme.
How will this work for those on zero-hour/flexible contracts/agency workers?
See “How do you work out what they get 80% of?” above.
How will it work in practice?
We understand that the employer will pay the contractually agreed amounts as required by the employment contract in the usual way. This will involve paying the employee, and HMRC the PAYE and both primary and secondary National Insurance Contributions. The grant will be paid directly to the employer. We do not know how this will operate for employers which use a payroll agency.
Employers will claim the grant through a new separate portal currently being built by HMRC.
What will I need to make a claim?
Employers should discuss with their staff and make any changes to the employment contract by agreement. Employers may need to seek legal advice on the process. If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.
To claim, you will need:-
Your ePAYE reference number.
The number of employees being furloughed.
The claim period (start and end date).
Amount being claimed (per the minimum length of furloughing of 3 weeks).
Your bank account number and sort code.
Your contact name.
Your phone number.
You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.
You can only submit one claim at least every 3 weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until the 01 March 2020, if applicable.
Are the grants taxable?
Yes, but the wage costs are tax deductible, so will be tax neutral.
Can we alter February’s payroll to bump the figure up?
No, this is fraud.
Can directors benefit from this?
The guidance says while on furlough an employee is not allowed to “provide services to” the company.
However, if you have a number of directors, leaving one running the company and furloughing the others might be reasonable.
For Owner Managed Businesses (OMB) with one director as long as the director is not generating income and only performing the statutory duties they will qualify for the job retention scheme.
Government Help for the Self-Employed
Last night the Chancellor announced financial support for the self-employed – i.e. sole traders and partners. Here are the basics we know so far:-
It’s based on your taxable profits in the three years to 05 April 2019.
You will receive 80% of your average monthly earnings over that period, up to £2,500. Initially for the three months i.e. 3/12ths of your average annual earnings.
It will be paid in June. It comes in the form of a grant, meaning it is not repayable.
The full government rules on the self-employed are set out here:-
You must make sure you have submitted a 2018/19 tax return within the next 4 weeks (if you are late (after 31 January 2020) you will still have penalties).
HMRC will send you a claim form in late May or early June 2020.
You will be required to fill in the form (with our help as required).
HMRC will send you the money.
Who it does NOT cover
Those whose taxable profits are higher than £50,000 on average over the three years to 05 April 2019. There is no taper, it is an all or nothing rule.
Those who earn through a limited company – you may be able to furlough your salary if you do no work. If you are a director for a limited company, you are employed, not self-employed.
Those who started trade after 05 April 2019.
Those whose self-employed taxable profit, on average over the three years to 05 April 2019, is less than half your total income. (i.e. if you also get a salary and your salary is the larger part of your income). You need to look to your employer, and perhaps the furlough rules.
Those who have not lost any income due to the Coronavirus.
Those whose self-employment does not continue through into 2020/21. Therefore, you must restart your trade after the shutdown to claim.
By excluding a number of groups, particularly those who earn through a limited company and those who started trade after 05 April 2019, there will be hardship; if you are in that group all you can do is look to the benefit system and universal credit.
What if I don’t have 3 years trading?
If you do not have three years to 05 April 2019, your income will be averaged over the period you actually traded.
What if you started trading half way through 2017/18?
The strong implication is that they will take the average of the two years where you have submitted tax returns. (i.e. your declared profits for the two years divided by 2). The whole of the year you started will be taken regardless of the exact date you started.
What if I have two self-employments?
The rules do not specifically say, but we would assume it is the average of the two combined.
What if I bought a van in 2017?
If you bought a significant item, such as a van, in one of the relevant tax years, your taxable profits will be lower in that year. This will mean you get less, but since we are taking a three year average, one significant capital purchase will be diluted over the three year period.
What if my profits average £48,000pa and I also have a £10,000pa employment?
You qualify because your self-employment is less that £50,000.
Husband and wife partnerships where you each have taxable profits of £40,000.
You both qualify, although your joint income is over £50,000 this is calculated on an individual basis not as a couple.
What if I’ve found a job?
The intention is to compensate you for loss of earnings, if you have not lost earnings it is unlikely you can claim in full. This is not specifically addressed in the briefing.
Is the grant taxable?
There will be no changes to the tax rates for 2020/21. It is very likely Class 4 National Insurance for the self-employed will increase from 9% to 12% in the following year.
A Reminder of Other Help (previously announced)
Your self-assessment tax payment on 31 July 2020 is optional, you can roll it into the payment on 31 January 2021, but you will need to pay it eventually.
If you have business premises with a £nil rates bill, you should get the £10,000 grant in April.
The self-employed grant will be released in June, if you can’t last until then government advice is:-
Take a three-month mortgage holiday.
Get a government sponsored loan from your bank.
You don’t have to pay VAT for the quarterly payment to 30 June 2020 but you will need to catch up by 05 April 2021.
If you would like any further support and advice with the announcements made by the government, please email the team on firstname.lastname@example.org