The news that employees would be eligible for 80% of their wages under the Coronavirus Job Retention Scheme, meant a sigh of relief for workers around the country. However, business owners are still trying to work out what it means, as are their advisors. The Government rushed the plans through and there are still many questions both from employees and employers. This feature summarises the information known at present. It is a moveable feast. Check out the HMRC website for updates and business owners speak to your accountants too. It has been suggested guidance is still two weeks away.
The Coronavirus Job Retention Scheme
The aim of the scheme was to help businesses minimise the economic impact of having to close. It came to fruition following the Government’s decision to stop pubs, bars and restaurants trading. Of course, now most businesses have ceased trading. The scheme will provide 80% of an employees’ salary, say the government, and it covers all workers paid through PAYE (so not just employees) however it is for furloughed employees only.
What does furloughed mean?
It is a term that usually means an agreed leave of absence like a sabbatical or career break. The Government is using this term so that employers can furlough and use the leave instead of making employees redundant due to the business being closed or suffering negatively from the impact of the Coronavirus. Once the crisis is over the employee can return to work and salary.
− those who work for businesses that have shut under direction from the Government, where such workers cannot do their job from home
− workers of employers who are so affected by the crisis from an economic point of view that they cannot afford to pay their workers and would, in the absence of the Scheme, make workers redundant.
Workers must not work for their employers during the furlough period, if you have to work you wouldn’t be eligible.
But employees are not eligible if:
− they were already absent from work as a result of self-isolation/social distancing guidance from the Government and who are eligible for statutory sick pay
− employees who can work from home even if the normal place of work shut.
− homeworkers who have reduced their hours/pay but are still working; and
− those workers who are otherwise able to attend work and whose employers are not considering redundancies.
Non-eligible workers could become eligible if they have been self-isolating and complete their seven or 14 day period of isolation for instance but whose employer has, at that point, had to close their workplace and they cannot work from home.
The Government will pay up to 80% of eligible workers’ pay (up to a maximum of £2,500 a month). It will be backdated to 1 March 2020 and for at least three months going forward. There has been no limit set on the amount of funding available to the Scheme. However, employers do not have to top up the further 20%.
Although no date for repayment has been set employers are expected to be reimbursed by the end of April. Businesses who cannot afford to wait until then could seek business interruption loans and other tax relief measures. See below.
What do you need to do?
Employers 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.
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).
Employees need to wait and see if their employer is going to access the Coronavirus Job Retention Scheme.
Businesses who need short term cash flow support may be eligible for a Coronavirus Business Interruption Loan.
The temporary Coronavirus Business Interruption Loan Scheme will support SMEs with access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to 6 years.
The government will also make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees, so smaller businesses will benefit from no upfront costs and lower initial repayments.
The government will provide lenders with a guarantee of 80% on each loan (subject to a pre-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The scheme will be delivered through commercial lenders, backed by the government-owned British Business Bank.
There are 40 accredited lenders able to offer the scheme, including all the major banks.
VAT and Income Tax payments
Time to Pay – VAT, Corporation Tax, PAYE and CIS
These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities. HMRC is being very flexible with payment deferrals. At present, HMRC will consider deferring payments for Corporation Tax, PAYE and/or CIS where the business is affected by the virus. Automatic deferment of all VAT has just been announced, covering VAT due over the next three months.
After an initial deferment (where applicable), the business can also apply for further assistance via a Time to Pay arrangement. Typically, installments of no longer than 12 months can be granted, however under these circumstances we expect there to be special concessions made.
HMRC is prepared to discuss this situation where a business with a current Time to Pay arrangement in place that they now cannot or will struggle to meet due to the disruption caused by the virus.
HMRC will take into account your specific circumstances when considering:
Agreeing on an installment arrangement (see below)
Suspending debt collection proceedings.
Cancelling penalties and interest where you have administrative difficulties contacting or paying HMRC immediately.
Please note, if you have an automated bank transfer set-up for HMRC payments, it may be worth you cancelling that for the time being, to ensure payments are not made automatically that you are in the process of trying to defer.
So far repayments of taxes recently paid are not available. However, this may change as things are moving very fast as the Government tries day by day to limit the economic damage.
VAT specific deferment
VAT liabilities arising during the period 20 March 2020 to 30 June 2020 will automatically be deferred by 3 months without the need to apply.
Businesses will be given until the end of the 2020/21 tax year to pay any VAT arising during this deferral period.
VAT reclaims and refunds will be processed as normal.
VAT returns MUST still be filed, there is just no need to pay the VAT arising at this time due to the deferral relief.
This is all in addition to the time to pay offer currently operated by HMRC.
For Income Tax Self-Assessment, payments due on the 31 July 2020 will be deferred until the 31 January 2021.
If you are self-employed you are eligible. This is an automatic offer with no applications required.
No penalties or interest for late payment will be charged in the deferral period.
Employees who have a reduced salary may also be eligible for support through the welfare system, including Universal Credit.
If you have COVID-19 or are staying at home
You are now able to claim Universal Credit, and if required can access advance payments upfront without needing to attend a jobcentre.
Some Questions still to be answered …
− What should employers do about workers who have already been made redundant/laid off? Could they be reinstated and become eligible for the scheme?
− Are employers barred from making any redundancies or reductions to pay if they enrol in the Scheme?
− Are employers who have already made redundancies barred from enrolling in the Scheme?
There is some commentary suggesting that employers can become eligible by reinstating any workers made redundant due to the crisis and making changing their status to furlough.
− What information needs to be provided when claiming under the Scheme?
– Is £2,500 per month the maximum by reference to gross or net pay?
− Will employers be able to justify a period of unpaid furlough until the grant is received?
− Would an employee no longer be eligible if they do other work during the furlough period?
− If an employer makes an advance payment to the workers in anticipation of receiving the grant (whether from its own funds or a business loan) does that rule them out of then getting the grant (as is the case with certain payments on insolvency)?
− Can you furlough some workers and not others? If so, how do you select those who should be furloughed swiftly without creating legal risks such as indirect or even direct discrimination claims?