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Markel Tax

09 Apr 2020

Further guidance issued on furloughing employees and the Coronavirus Job Retention Scheme (CJRS)

HMRC have now published more detailed guidance on furloughing workers and the CJRS.  Helpfully, the new guidance makes it clear that some individuals who, despite not being engaged under contracts of employment, are still able to be placed on furlough and receive 80% of wages funded by the grant. 
Provided that they are paid via PAYE and were on the payroll on 28 February 2020, the CJRS will apply to:
  • office holders (including company directors) this specifically applies to salaried individuals who are directors of their own personal service company (PSC)
  • salaried members of Limited Liability Partnerships (LLPs)
  • agency workers (including those employed by umbrella companies)
  • limb (b) workers
This removes much of the confusion regarding the eligibility of these individuals and is welcome news. 

Directors of Personal Service Companies

The confirmation of CJRS support for office holders will assist directors of Personal Service Companies who previously appeared to have fallen outside of both the rules for supporting employees and self-employed individuals. 
However, the CJRS will only provide support of up to 80% of the amount paid via PAYE and will not provide any equivalent support for the income that would have been drawn as dividends.  For a director who was mainly receiving income as dividends and only taking a salary of £719 per month (the point above which Class 1 NIC becomes payable) during the corresponding month last year, this will provide funding of £575.20 per month under the CJRS.  While this support is welcome it penalises directors who have taken income in an entirely legal, tax efficient manner.

Limb B Workers

The new guidance also extends support to ‘limb b workers’ who are paid via PAYE but are not engaged under contracts of employment.  The formal definition of a ‘limb worker b’ is someone who:
  • has entered into or works under (or, where employment has ceased, worked under) a contract of employment, or
  • any other contract, whereby the individual undertakes to do or personally perform any work or service for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual
This excludes a genuinely self-employed contractor working in business on his own account under a contract for services.  It probably does not capture workers who are engaged under self-employed contracts but who are deemed to be employees by virtue of s 44 ITEPA 2003 and the equivalent NIC rules.

Hybrid Contract Arrangements

While the guidance tells us that those limb B workers who declare a taxable profit from self-employment may be eligible to claim under the Self-Employed Income Support Scheme (‘SEISS’) but this falls short of covering hybrid contract workers who have not declared their income as self-employment.  This is because their contracts will allow them to provide a substitute so they do not fall into the Limb B worker group.  Most will not have declared income from self-employment it was already subject to PAYE (subject to s44 ITEPA 2003 and the associated NIC rules). 
However, we consider that hybrid workers are agency workers (as most if not all of those we have seen are engaged via an agency/umbrella style arrangement) and should be eligible to be furloughed as agency workers.

Who can be furloughed?

Any worker who was on your PAYE system at 28 February and was engaged under a contract of employment or is in one of the categories discussed above.  Furlough must be for a minimum period of three weeks.  Workers must not do any work for their employer while furloughed.  They can work elsewhere and can be furloughed by more than one employer if they are eligible.
Full details are in the Government guidance the link to which is below.

Calculating and applying for the CJRS grant

Employers will apply using an online portal but this is not expected to be live before the end of April.  The grant amount will be calculated as 80% of a worker’s salary for the same month’s salary last year or, where that data is not available, an average over the period they have been employed.  A further amount to cover the employer’s class 1 NIC contribution and minimum pension contributions will be added to that amount.
Employers must pay the full amount of the wages element of the grant to the worker and cannot hold any portion of it back to cover other costs.  Business interruption loans may be able to cover those costs.

Public Sector Bodies

The published guidance includes a link to separate guidance for public sector bodies engaging contingent labour (who will mostly be agency or PSC workers).  This may be useful for PSC directors as background information.

Where to find the new guidance

Public sector contingent worker guidance
Guidance for employees on Job retention availability
For further information, please contact 0333 920 5708 and ask for David Harmer.
Tagged R&D tax relief COVID-19
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Loan Charge: HMRC forced to repay voluntary contractor loan settlements