As “Version 1” is always better than Version “None” we think it is better to get something out to our clients contacts and then update as matters develop.
Please understand that this is both uncharted and challenging times for all of us - our grammar may not be perfect and the style may look a little “rough around the edges”; for which we hope to have your understanding!
There are 3 parts to this update:
- What we know so far from the Government announcements.
- Some initial FAQs.
- What next? Our thoughts on where CJRS might go, as we suspect the scheme announced so far is Version 1 and refinements for the self employed and small firm directors will be on the way.
What we know so far
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 1 March 2020 and will be open before the end of April. It will continue for at least 3 months, and can include workers who were in employment on 28 February.
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 so please take HR advice (clients of Rowdens benefit from a free helpline – see below); and 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.
- HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month.
- 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 cashflow support, may benefit from the VAT deferral announced and may also be eligible to apply for a Coronavirus Business Interruption Loan.
- Your employees will remain employed while furloughed. You could choose to fund the difference between the 80% funded by the CJRS and their normal salary. However, the initial indication is that this “top up” is not a legal requirement but you may choose to do so.
- If an employee’s salary is reduced as a result of these changes, they may be eligible for support through the welfare system including Universal Credit.
Some initial FAQs
Q: What does “furloughed” mean? (Probably now one of the most “searched for” words and mis-spelt word for future and past tense uses of the word!)
A: It’s if you allow someone to be absent from work for a period.
Q: How do I access the HR support line you mentioned above?
A: Call 0844 561 8155 and Quote 80969
Q: Is the government going to pay my employees for me?
A: 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 (neither for you nor anyone else!).
Q: Can they do some odd jobs for me whilst being “furloughed”?
A: Absolutely not.
Q: Can they go part time and benefit from this?
A: No. They can’t lift a finger. We are looking at whether it would be sensible to make some of your staff full time, and put others on furlough leave.
Q: Who qualifies?
A: Anyone on payroll at 29 February.
Q: How do you work out what they get 80% of?
A: We are not sure yet but it could be an average of salary paid in the previous 3 months (and may or may not include overtime paid in the period).
Q: Can we alter February’s payroll to increase the salary paid?
A: No. HMRC will have reports of the February payroll and you can expect serious questions if this is done to take unfair advantage of the scheme and is likely to be considered fraud.
Q: My kids/mother/brother are on the payroll and have never lifted a finger for the business, can I claim for them even though they will continue to do nothing.
A: Technically, probably yes, but don’t ask us to claim it!
Q: Can directors benefit from this?
A: No guidance is currently available but see our thoughts on “what next” below. Clearly if you are the sole director and employee it may be hard to justify you are doing no work for the business while on furlough.
Q: Can you do a bit of creative accounting to enable me to make a claim under this scheme when we both know I don’t really qualify?
Q: But if my “mate down the pub” or perhaps that should be my “mate on Facebook” says their accountant will do it, will you change your mind?
A: No. If you choose to move to your mate’s accountant, we will be sorry to lose you as a client. If we have time once this is all blown over, we will come and visit you while you are furloughed at Her Majesty’s Pleasure.
Is CJRS the finished article? No, it is not perfect but it is a starter for 10!
If you speak to 10 business people, we suspect you will get 10 different views on where the holes are, what needs to change and what should happen to those who abuse the system. We are sure change is coming to refine the scheme.
Will some people look to abuse the situation?
Of course, there will be people who will look to gain economic advantage from the scheme on offer. We expect, and hope, that where this is identified, severe sanctions are used to punish those individuals, together with any professional advisers who are complicit in the abuse of the scheme.
The self-employed (who can do no work)
First of all, we believe the definition of self-employed should be expanded to include director/shareholders of small companies who typically take a small salary and the rest of their income is dividends.
The self-employed need to have the same support as the rest of the employed population. How this is calculated might be on the information HMRC already hold on a person’s income for the tax year ended 5 April 2019. Being technical for a moment, we believe that the impact of Capital Allowances and tax losses brought forward would need to be considered.
The self-employed who can do some work but have concerns about being paid
This is where we believe the CJRS can, and should, be improved for those self-employed people (who may have a number of employees working for them) where some work is possible.
At the moment, the scheme is designed to support workers who would otherwise be made redundant (i.e. because the retail shop they work for has just shut). In effect, the employees who are furloughed are being paid to stay at home and do nothing because there is nothing for them to do.
However, there are a significant number of businesses who could carry on working at normal (or reduced) hours which means that they are not able to benefit from CJRS (either for themselves or for the wages of their employees).
Although these businesses could carry on, they may have concerns about being paid for their efforts and so would suffer a “double whammy”; paying for their staff wages in full and suffering a bad debt when their customer is unable to pay them.
These businesses will then be faced with a dilemma; whether to furlough a significant part of their work force or take the gamble that work undertaken will be paid for.
We hope that the CJRS will become flexible enough to allow small employers to be able to benefit from a grant (which would be repayable) to keep their employees working (either at full pay or 80% of pay) in the business rather than doing nothing at home.
Clearly, any grant should be repayable in part (or in full) if a business can be shown to have benefitted from a grant that covers 80% of an employee’s cost.
But we believe it is better to have people working remotely with the possibility of generating income that would lessen the cost to the UK Government (and eventually each of us) than paying staff to remain idle at home.
If staff are furloughed what can they do or perhaps more importantly what can’t they do?
We are expecting better guidance on the “do’s and don’ts” around the furloughing of employees; for example:
- What is the minimum time an employee can be furloughed for? (i.e. if they work 5 days a week can they be furloughed for 2 days and work 3 days?)
- Will the Government pass legislation that will allow employers to furlough employees without the risk of an employee taking them to an employment tribunal when times return to normal?
- Whether the furloughed employee can undertake work-related training (i.e. getting certified on software their employer or their employer’s client use so that they are better placed to do their job when they return to work). For example, most of our clients use Xero accounting software and there are lots of training videos available in Xero and the other applications we use to assist clients. If an employee is furloughed, can they spend time getting educated on how to better use the software?
- What sanctions will be imposed on those employees/employers who abuse the system by claiming an employee is furloughed when they continue to work. We hope that these sanctions will be stringent to act as a sufficient deterrent.