And a possible fly (or two) in the ointment. The 2 action points for this update:
We are encouraging everyone to do a cashflow projection to steer them through these troubled times.
A simple Excel cash flow template is available on our Rowdens Chartered Accountants’ Community Facebook page to help our clients and local businesses deal with managing their cashflow. Please join this group and download (and share it with your customers and suppliers if you feel they could benefit from using it!).
Coronavirus Job Retention Scheme
We are all awaiting details of how the Coronavirus Job Retention Scheme will work in practice and are looking forward to getting some simple examples to share with our clients.
But what is the possible fly in the ointment referred to in the headline?
We suspect that, for furloughed employees, the employer will have to pay the employee before the money is transferred by HMRC to the employer under the CJRS.
Putting to one side for the moment how the payment due under CJRS is calculated, how might the cashflow work?
- Sue is a furloughed employee and is due to receive £1,500 under CJRS and her pay date is 30 April.
- HMRC will only know the amount of the CJRS payment once the employer makes the monthly online return; and we do not know when HMRC will be in a position to pay the employer the CJRS payment.
If this is how it works in practice, then there is going to be a period (of say a couple of weeks) when the employer is going to have to fund the furloughed employee’s 80% salary.
If the employer is not going to be able to fund this short-term cash hit, will the Government allow a delay in employers paying furloughed employees? Only time will tell.
And possibly it may not be as good as it appears for the employer
Most businesses are probably working on the assumption that they will not be making any payments to HMRC in the immediate future (via a Time to Pay arrangement). While VAT is sort of sorted for the next 3 months, we are expecting our clients to be asking for time to pay on any other tax where an automatic deferral is not in place.
One payment that will be due for everyone employing staff who are not furloughed, will be the PAYE monthly liability.
Without the CJRS scheme, we suspect most employers will be asking for time to pay for PAYE; but will there be a link to the CJRS payment employers might expect to receive from the Government?
For example, if in addition to Sue (a furloughed employee getting a £1,500 CJRS payment) a business also has 2 full time members of staff who are not furloughed and, let’s say the PAYE and National Insurance (both employers and employees) is £1,400.
Optimistic employers may think their cashflow will be:
- Pay Sue £1,500 under CJRS
- Receive from HMRC the CJRS £1,500 (say 2 weeks later)
- Ask HMRC for time to pay for the non furloughed employer’s liability of £1,400.
In reality could it be?:
- Pay Sue £1,500 under CJRS
- HMRC then deduct the CJRS payment from the £1,400 PAYE/NIC liability for non-furloughed workers, with only £100 being received by the employer (say 2 weeks later).
So, what would the position be if Sue was let go rather than furloughed?
- Ask HMRC for time to pay for the £1,400 PAYE/NIC liability.
Depending on the guidance, we could see an outcome where cash strapped employers make a decision to terminate an employee rather than furlough them for cashflow reasons (much as they may have wished to have kept them on the payroll for when business improves).