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Markel Tax

31 Mar 2020

Coronavirus Job Retention Scheme

On 27 March the government released its formal guidance on the measures that were announced by the Chancellor to help businesses maintain their workforces in the light of the COVID-19 pandemic.

The Scheme

The Corona Virus Job Retention Scheme provides a grant to pay wages to furloughed workers and is available to all employers of at least three month’s standing (i.e. the employer must have had a PAYE scheme set up and running on or before 28 February).  The scheme will run for three months initially, starting from 1 March. 

The scheme is expected to be operational by the end of April and applications for the grants will have to be made using an online portal.  Employers will need to process the payments to furloughed workers through the payroll and then claim the grants.

Grant payments will be in available respect of workers who have been laid off (furloughed) and will cover 80% of an employee’s average wages plus employer’s NI and minimum automatic enrolment pension contributions.  Payments will be capped at £2,500 per month.  Fees, commissions and bonuses are not covered. 
The employers must pay the lower of 80% of average wages or £2,500 per month to the employees to qualify, none of the grants can be retained by the employer to cover overheads.  The scheme does not cover the shortfall in wages for employees placed on reduced hours or pay.  They must be ‘furloughed’ to be eligible. 

The grants will be counted as part of the employer company’s turnover and will be taxable in the hands of the employees.

Eligibility

Employers who can use the scheme include ‘recruitment agencies’, defined as employers of agency workers paid through PAYE.  Subject to the final legislation, the guidance suggests any individual paid via PAYE will be eligible, which would bring those under hybrid/s44 arrangements within scope.   
The scheme covers the usual full time and part time permanent staff and also:
  • Employees on agency contracts.
  • Employees on flexible or zero hours contracts.
HMRC has confirmed that company directors will also be covered by the scheme.
‘Limb B workers’ (i.e. people who are not employees, but are treated as having similar rights and obligations under employment law) do not appear to be covered, which suggests that workers in this category would need to look to the COVID-19 Self-employment Income Support Scheme for support instead.
The scheme also does not extend to:
  • Employees hired for the first time after 28 February.
  • Employees on unpaid leave starting from 28 February or earlier

“Furloughed”

To be ‘furloughed’ an employee must be laid off for a minimum of three weeks.  Importantly, this must be with the agreement of the employee and should be recorded in writing or an amendment to contractual terms and conditions of employment to avoid breach of contract claims. 

Furloughed employees must not work for the company or anything to generate revenue for the company.  Furloughed employees can undertake volunteer work or training without losing eligibility (although compulsory work training does fall foul of the restrictions on what can and cannot be done).

The scheme covers employees who were made redundant since 28 February but who are rehired.  It seems that under current rules those employees could still claim redundancy pay even if they are rehired. 

Employees who are paid enhanced (earnings related) maternity above the SMP amount are eligible to be included in the scheme, but the scheme will only cover the enhancement pay.

Conclusions

There is much to be welcomed in this initiative from the government, as it does seem to be an effective way to guarantee continuity of employment for a large proportion of the work-force.  As always, there will be losers from the scheme and there are question marks over its potential effectiveness.

There do not currently appear to be any specified regulations covering the operation of this scheme and the Coronavirus Act 2020 does not cover it.  Material placed in the House of Commons Library on 25 March makes no reference to any empowering legislation.  It does suggest that some changes will be needed to employment law as part of the scheme.

As set out above, HMRC guidance states that directors can claim under the scheme, which seems, superficially, to be beneficial to consultants who operate through their own personal service company (‘PSC’), but, in reality, it is unlikely to benefit these people, as most will have taken small salaries and the balance of their income would have been made up of dividends. 

The scheme will also not help companies struggling with cash-flow, as employers will first have to pay their employees through the payroll before claiming grant relief.

We have created these helpful flowcharts so you and your clients can easily determine where they may be able to claim. You can see our self-employed income support flowchart here and our job retention scheme support flowchart here.

Finally, the need to use an HMRC Computer system to claim the grants will send a chill of fear down the spine of anyone who has had to use their systems.
For further information please contact the 0345 066 0035 and ask for David Harmer.

Our COVID-19 Hub contains a range of information and resources to best support our clients during this difficult time. To receive the latest news and insights by email sign-up here.
Tagged Employer solutions COVID-19
Next article in series

27 Mar 2020

COVID-19 and IR35: Should your clients relax now the legislation is postponed?