COVID-19 – The key measures announced by the Chancellor on 20 March 2020
The Chancellor’s update on Friday 20th March in relation to Coronavirus included several key new Coronavirus related measures for businesses which will provide reassurance for both employers and employees.
As the measures are being introduced rapidly, some of the detail of the measures has not yet been finalised and so this commentary will be updated as we are provided with updates by (for example) HMRC.
The Coronavirus Job Retention Scheme (“CJRS”)
The CJRS is focussed around encouraging employers to “furlough” staff rather than laying them off. The term “furlough” isn’t well known in the UK, but it is widely understood in (for example) the US economy. It refers to an involuntary temporary leave of absence which is imposed due to special needs of the company or employer.
The purpose of the CJRS is to encourage employers to stand down employees in a temporary fashion on furloughs rather than laying staff off.
HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. Both the Chancellor’s statement and HMRC’s guidance are a little ambiguous but we understand this to be a grant of up to £2,500 a month per employee.
The salary figure is based on the person’s salary in February 2020. HMRC will be able to confirm this via Real Time Information.
So this would effectively mean that for a person on a salary of £37,500 (£3,125 a month in February 2020), then HMRC would pay the maximum grant of £2,500 towards that.
For persons on salaries below £37,500 (£3,125 a month in February 2020), then the grant paid would be proportionately lower. For persons on annual salaries of above £37,500, the grant per month would be capped at £2,500 and so the additional monthly cost of having that person on furlough would have to be borne by the employer.
The CJRS will be backdated to 1 March 2020 and will operate for at least April and May 2020. However, the Chancellor has confirmed it will be extended if required.
HMRC say they are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers. HMRC expect that refunds by grants will be made at the earliest from April 2020.
How to track your employees and claim the grants
You will need to:
- Designate affected employees as ‘furloughed workers,’ and notify your 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.
All employers are able to utilise the CJRS and there is no limitation on size of employer or sectors.
There are some points that businesses should bear in mind in relation to the operation of the scheme:
- The system for refunds does not exist and will make payments at the earliest from April 2020, so employment costs will still need to be incurred and cashflowed by the employers.
- The grants are only of 80% of the salary cost of employees (capped at £2,500 a month) and so the employer may still need to bear 20% of the salary cost as an absolute cost of furloughed employees.
- Based on our current understanding, the employer will still have to account for PAYE on the entire salary cost “paid” as normal, and NIC (both employers and employees) will also be due on the entire salary cost as normal. Therefore, the payroll taxes will be due on the salary amount paid to the furloughed employee ignoring the grant.
- We understand that if a business is submitting an application under the Coronavirus Business Interruption Loan Scheme, then whether or not the staff costs for furloughed employees within a business plan should be reflected “with grant or without grant” will be at the discretion of the lender.
- The guidance issued by the Government, which follows the statement by the Chancellor, confirms the employer does not have to pay the furloughed employee 100% of their normal salary to be able to claim back 80% of the cost as a grant.
Information we are seeking to clarify
Can a company implement a “furlough rota” for staff, e.g. if you have four members of staff in the same role but you now have work only for three, do you have to furlough one person, or can you implement a rota whereby each employee is furloughed for a week a month?
Can you furlough a persons role to, for example, reduce their days working from five a week to three a week?
Deferring Valued Added Tax (VAT) payments for 3 months
The VAT deferral will apply from 20 March 2020 until 30 June 2020. This is an automatic deferral with no applications required.
Businesses will not need to make a VAT payment during this period. 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. VAT refunds and reclaims will be paid by the government as normal.
No penalties or interest for late payment will be charged in the deferral period.
If you have set up a direct debit and have submitted a VAT return for February 2020 which is due for collection in early April 2020, then cancel the direct debit.
This is also creating a tax debt which will become due in later months, and so the business may need to update cashflow forecasts and potentially agree a Time to Pay arrangement with HMRC. Businesses should remember this is not a grant, it is a tax debt and businesses should reflect that in their cashflows.
Deferring income tax payments from 31 July 2020 until 31 January 2021
For Income Tax Self-Assessment, payments on account which are due on the 31 July 2020 will be deferred until the 31 January 2021.
HMRC’s guidance states “if you are self-employed, you are eligible”. We would expect this to therefore include partners in professional partnerships as well as self-employed persons who are in business on their own.
This is also creating a tax debt which will become due in later months, and so the self employed person, or partnership, may need to update cashflow forecasts and potentially agree a Time to Pay arrangement with HMRC. Persons affected by this deferral should remember this is not a grant, it is a debt deferral.
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