COVID-19 - Job Retention Scheme

We have received a number of enquiries in relation to the new ‘furloughed’ status for employees and we therefore wanted to provide an update to provide some further guidance based on the rules as we understand them as at 23 March 2020. Further detailed information will be released by HMRC in due course.

Summary of the Coronavirus Job Retention Scheme

1.     It is available to employees on the payroll as at 29 February 2020. We are still awaiting clarity on any employees who have been employed after this date and whether they will be eligible.

2.     All UK businesses are eligible.

3.     Furloughed workers must not work for the employer during the period of temporary leave.

4.     The scheme start date is from 1 March 2020, so it will be backdated. It will last for at least 3 months and will be extended if necessary.

5.     The scheme pays a grant to the employer. This is not a loan and will not need to be repaid.

6.     The grant will be paid to the employer through a new online system, which is being built for this purpose.

7.     The employer will pay the employee through the payroll in the normal manner.

8.     The Government will pay 80% of 'wages', up to a cap of £2,500 per month. It is our current understanding that this includes Employers' NIC and pension contributions, although we are awaiting additional guidance in this respect to understand what is covered.

9.     It is at the discretion of the employer to decide if they wish to top up the pay of furloughed workers above the 80% or £2,500 cap limit.

10.  Many owner managed company director/shareholders pay small salaries and the balance of income as dividends for tax efficiencies. The scheme does not extend to dividends. Only the salary will be relevant.

11.  The earnings criteria for seasonal staff or those with regular commission, overtime, etc have not yet been defined by the Government.

12.  It is unclear whether workers can move in and out of the 'furloughed' status, although we would expect this to be the case.

13.  The matter of which employees an employer decides to furlough will be a matter for negotiation with staff and employment law.

14.  An employee does not have to accept the 'furloughed' status, although the alternative might be redundancy if the business cannot continue to pay the employee, depending on the employment contract.

Please note that the guidance for Directors is still unclear, although it is likely that most Directors may not meet the eligibility criteria (see our example below) unless the company employs two or more Directors and the administration of the company is handled by one sole Director. In that instance, those that cease involvement or work for the company should qualify based on our current understanding of the legislation.

Example

In this example, we have used a Hair Salon that has closed due to COVID-19.

Mr & Mrs Smith have salaries of £8,600 each and withdraw profits of £30,000 each in the form of dividends.

The Hair Salon employs 5 permanent staff members on the monthly payroll.

Mr & Mrs Smith close the business due to Government advice and decide to furlough all staff other than Mr & Mrs Smith who are dealing with the company administration. The 5 permanent staff members have agreed to accept a pay reduction to 80% of their normal salaries.

Our understanding is that the Hair Salon will be eligible under the Coronavirus Job Retention Scheme to receive a grant for the monthly wages of the 5 permanent staff members. No grant support is available to support the living costs of Mr & Mrs Smith.

Mr & Mrs Smith will need to consider other financial measures introduced by the Government for themselves.

Please be aware that the legislation has not yet been passed and we are awaiting further clarity on a number of items. We are expecting the Government to issue the relevant guidance within the next week and will provide further updates once these are available.

We are aware that these measures impact almost everyone at some level, so please feel free to share this with friends and family members.

We would also like to ask for patience and consideration for our team that deal with your payroll requirements. As you can appreciate we have had a large number of calls to our offices to deal with the current uncertainty due to the global pandemic. We totally understand how important these issues are to our clients and we are working tirelessly to respond to everyone in good time, which include the mailers that we hope all of you receive.

This email is an abbreviated summary of legislation announced by the Government in respect of the COVID-19 outbreak at the time of the e-mail release. Please note that this is not intended to be advice, and should not be relied upon as such.  Honey Barrett will take no responsibility for any decisions or actions taken based on the information included here.

If you have any questions please do not hesitate to contact your normal contact at Honey Barrett, who can assist with any enquiries.

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