Briefing – 24th March 2020
Since we last briefed the Chancellor has issued further business support and restrictions on liberty all of which will be effecting your businesses.
We had been holding off sending a further briefing document in the hope that the Government would provide explicit detail on how the Coronavirus Job Retention Scheme (CJRS) would work in Operational terms. We still don’t have this, but the below is a summary of what we have so far but will undoubtedly be subject to change.
Last Friday’s support offered –
Coronavirus Job Retention Scheme (CJRS)
- Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis.
This is being positioned as a Grant so in turn won’t be repayable.
- HMRC will reimburse 80% of furloughed workers (an employee that is kept on the employer’s payroll, rather than being laid off) wage costs, up to a cap of £2,500 per month. To qualify for the scheme, employees should not undertake work for the employer whilst they are furloughed. HMRC are working urgently to set up a system for reimbursement, as existing systems are not set up to facilitate payments to employers.
- The government expects the Coronavirus Job Retention Scheme to run for at least 3 months but will extend if necessary. In addition, the scheme will be backdated to March 1st. There is no official guidance on what should be done if a company has already laid people off, but the fact that the Chancellor indicated that claims can be backdated, infers that employers can and maybe should contact employees who’ve been laid off and offer to redesignate them as furloughed workers instead.
- The scheme will be open before the end of April. It is open for workers who were in the businesses employment on 28 February 2020.
- The ‘not undertaking work piece’ detailed above, includes not answering calls or emails. In exchange, employers can claim the grant.
- The employee remains employed and their employer can choose to fund the difference between this payment and their usual salary, but it’s not compulsory.
- Assuming notice hasn’t yet been served on ‘at risk’ employees, and even if it has, employers should discuss the CJRS with them as part of any consultation process and agree to either carry on with the redundancy process, or agree to use the CJRS as an alternative.
- We don’t yet know whether employees will be restricted from taking on other/new work while receiving a salary under the scheme.
- Putting an employee on the scheme should not interrupt an employees’ continuity of service.
- Annual leave will continue to accrue as normal.
- It is likely that amounts reimbursed as CJRS payments are to be categorised as ‘pay’, and maybe PAYE and NI could become payable at a later deferred date. But we don’t know yet.
- If payments to furloughed workers aren’t treated as ‘pay’ to the employees (possibly classed as a leave of absence), there may be complications to entitlement of any benefits the company offers (healthcare etc.) but we’re suggesting reviewing this on a case by case basis.
- The grant is a reimbursement by HMRC so businesses may face cash flow issues as it appears the 80% ‘wage’ due must be paid by the employer first, then reclaimed from HMRC.
- Changing the status of employees on to the CJRS scheme remains subject to existing employment law and may be subject to negotiation.
- It is anticipated that personal service companies will be eligible in the same way as other businesses and subject to the same expected rules on the reference salary for the 80% calculation but we don’t know for sure. See below.
- We haven’t been provided with any rules to calculate what makes up an employee’s salary, but suggestions are it will be based on previous pay periods (excluding sick leave). The example used is an average of the 12 weeks ending on 28 February 2020.
- Furloughed employees are likely to be classified as such on payroll software (yet to see if this can be done in practice). Employers will prepare an application to HMRC and submit through a new online portal to receive the reimbursement (we don’t know any real details of this process).
At this point we expect the practical steps to be as follows:
-Set up the payroll with a furloughed pay element to identify the amounts for reclaim (if possible).
-Calculate furloughed pay (method TBA but likely to be based on pay in immediate previous pay period(s).
-Assume this is still pay and that PAYE tax and NIC deductions will be due, albeit that payments to HMRC are likely to be covered by the funding assuming the £2500 is a gross figure of earnings.
-This is a grant that reimburses the business, so cash flow could still be an issue. A bank facility or loan may be required to fund these payments prior to reimbursement.
Anticipated practical step by step process:
Identify those employees ‘at risk’ and earmarked for lay-off.
- Analyse pay from the period used to calculate furloughed pay (method TBA by government).
- Establish base pay that qualifies for 80% furloughed grant.
- Identify employees where £2,500 cap will apply. This is for any employee earning more than £37500 per annum. (£37500 x 80% = £30000/12 = £2500)
- Calculate additional pay required to get to ‘normal’ pay (normal monthly pay – step 3).
- Review options to top up remaining 20% outside of the grant from company cash.
- Identify employees required to remain in active employment on normal full pay.
- Discuss options to temporarily change remuneration for those employees not furloughed, including establishing new ‘base’ pay in line with national minimum wage and employment related loans. (Bear in mind employment contract). Remember it is the employers decision to furlough staff, based on business need, and this will be very much dependant on whether you still need them to work. It is not the decision of the employees.
- Communicate with all affected employees including illustrations of proposed payments.
- Obtain employee buy in to the measures proposed.
- Implement changes to payroll and pay elements.
- Prepare application to HMRC.
- Register and log-on to new HMRC portal (timing TBC).
- Submit required information to HMRC.
- Receive reimbursement via new system (timing TBC).
The above is our current interpretation of masses of different pieces of government information. We will obviously update you as things become clearer.
A couple of further points:
- If the employer shuts the business and tells staff who are ready and able to work not to come into work, it is the employer that is not providing work for them. The employer would have to continue to pay them in full pay unless there is a shortage of work/lay off clause in their contracts and the employees have signed their contracts.
This is normal employment law. The furloughing legislation now exists so you can decide if you wish employees to work and be paid either in full or part, or you furlough them. But you must consult with your workforce.
- Businesses are permitted to require employees to take any paid holiday entitlement they have, but must give notice of twice the length of the period of holiday they are being required to take.
The things we don’t know about the CJRS are as follows:-
- Can the CJRS scheme be used by owner managers of businesses who are paid a Directors salary of currently circa £719 per month. We don’t know for definite.
- If someone is returning from SSP after a period of self isolation can they be furloughed straight away.
- Do you have to have worked with a business for a certain period of time – we think it’s just if you were on the payroll at 28/2/20 you qualify
- What happens if you want to furlough team members part way through this month but have already actioned the March payrolls.
- How does the employer get the money back and how do we manage cash flow if we don’t get it until the end of April.
- What does CJRS mean for an employee returning from maternity
- Will employers be liable for Employers NI contributions on the CJRS payments
- What about auto enrolment contributions
- Do you have to be over 18 to be furloughed
- If the business owes money to HMRC will this be settled before the business receives their CJRS grant
Support available to the Self-employed
The Government has said it will announce further measures to support self-employed people over the coming days.
- If you are self-employed and claiming Universal Credit, and are required to stay at home or are ill as a result of coronavirus, the Minimum Income Floor (MIF) will not be applied for a period of time whilst you are affected: MIF will usually be what someone of your age would earn if they worked at the National Minimum Wage for the number of hours that you are expected to work. The new measures mean self-employed people will now treated the same as employed people within the Universal Credit system.
- Self-employed people can now access, in full, Universal Credit at a rate equivalent to Statutory Sick Pay for employees (£94.25 per week for up to 28 weeks, to be paid from day 1, rather than day 4). More information and the application process can be found in the below link:
- New claimants will not need to attend the jobcentre to demonstrate gainful self-employment.
- Self-employed workers can also make a claim for new style Employment and Support Allowance on the Government’s website, which is a fortnightly payment that can be claimed on its own or at the same time as Universal Credit (UC). Please see the below link for more information:
-If you’re self-employed, Income Tax payments due in July 2020 under the Self-Assessment system will be deferred to 31 January 2021. No penalties or interest for late payment will be charged in the deferral period. (This point is currently already in the section “Deferring VAT and Income Tax payments”)
Business Interruption Loans
Clients have been starting to apply for these. First feedback is:-
You don’t apply for an amount, you seem to need to provide the bank with One of the following:
-Annual wages cost
-Turnover from the latest accounts
-The liquidity needs of the business for the coming 18 months (this would need to be provided by you (or be prepared by us) and needs to include a ‘business liquidity plan’ although there are no details on what that must include – presumably Lloyds could advise if necessary)
The bank then determine the amount they are prepared to lend you under the scheme. You might then need to appeal or provide more information if you don’t believe it’s enough
You need to be aware you must sign a personal guarantee for any amount borrowed and the bank will have a charge over any assets you own, apart from your principal private residence.
However, we have not had contact with all lenders as yet, so individual bank requirements may vary.
Deferring VAT and Income Tax payments
- VAT payments have been deferred for 3 months. Businesses will not need to make a VAT payment during the period 20 March 2020 until 30 June 2020. Taxpayers will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period. However, VAT refunds and reclaims will be paid by the government as normal.
- If you’re self-employed, Income Tax payments due in July 2020 under the Self-Assessment system will be deferred to 31 January 2021. No penalties or interest for late payment will be charged in the deferral period.
- Both schemes are an automatic offer with no applications required.
Time to Pay service
- All businesses and self-employed people in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service. These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.
- If you have missed a tax payment or you might miss your next payment due to COVID-19, please call HMRC’s dedicated helpline: 0800 0159 559.
Filing of Accounts
- Companies House are allowing companies more time to file their accounts:
If immediately before the filing deadline, it becomes apparent that accounts will not be filed on time due to your company being affected by Coronavirus (COVID-19), you may make an application to extend the period allowed for filing. Accepted applications normally receive an extension of 30 days.
- A common question on insurance has been “Do I have business interruption cover if the government force closure?”. Currently, the answer in the main is no, which is explained by the ABI’s comments as follows.
“Irrespective of whether or not the Government orders closure of a business, the vast majority of firms won’t have purchased cover that will enable them to claim on their insurance to compensate for their business being closed by the Coronavirus.”
This position was invoked after the SARS outbreak of 2002 – 2004
Standard business interruption cover – the type the majority of businesses purchase, does not include forced closure by authorities as it is intended to respond to physical damage to the property which results in the business being unable to continue to trade.
A small minority of typically larger firms might have purchased an extension to their cover for closure due to any infectious disease. In this instance, an enforced closure could help them make the claim, but this will depend on the precise nature of the cover they have purchased so they should check with their insurer or broker to see if they are covered.
- There may be some employer’s liability exposure for employers, but they would have to be proven to be negligent in some way, for example, if an employer permitted staff to travel to areas which are against World Health Organisation (WHO) or Government (Foreign Office) advice.
- Travel cover is now excluded from most new policies and existing annual policies when a holiday is booked after 16 March 2020, due to The World Health Organisation declaring the ongoing Coronavirus (COVID-19) outbreak a pandemic on 11th March 2020, so this is now a known event.
Most new policies purchased, or new trip booked, covered by an existing annual multi trip policy after 16 March 2020, will not cover any cancellation claim in relation to Coronavirus, including but not limited to, cancellation due to your diagnosis of Coronavirus, FCO advice or flights being cancelled.
Please note most policies will not cover any claims for travel to any Country where the FCO has advised against all but essential travel.
Personal Insurance (Income Protection & Private Health)
- All insurers have pulled out of providing unemployment cover for new applicants
- Comparison website Comparethemarket.com announced on 18 March that it was temporarily suspending quotes on all forms of income protection, meaning accident and sickness cover, not just unemployment protection.
- On 17 March, the Association of British Insurers (ABI) confirmed that private health insurers are still taking on new customers. Prices charged for healthcare do not look set to change but the provision of private healthcare could be impacted.
- All COVID-19 patient management is being led centrally by Public Health England with the NHS leading the response. Privately insured COVID-19 patients should turn to NHS 111 and if necessary continue on with the NHS. Private hospitals do not include emergency facilities. Currently, there are no private hospitals providing COVID-19 care. Policyholders can, however, use their private insurance for advice and support.
For more information, please visit: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses#support-for-larger-firms-through-the-covid-19-corporate-financing-facility
- For any clients with Barclays lending, they have today opened FastTrack, a system to discuss any monetary concerns that clients may have personally. FastTrack Barclays will give all customers faster access to generic advice re mortgage repayment holidays, budgeting and working plans for anything else that currently might be of concern.
- FastTrack is available via the details below :
- Emma will ensure that support is available within 24 hours. Please also find a useful link to their Website – Banking, travel and events during the coronavirus outbreak:
We have yet to hear from any other bank directly – so well done Barclays!! For non-Barclays clients please call your respective banks.