Employers and Employees. Coronavirus Job Retention Scheme.
In the latest releases, HMRC has confirmed that salaried Directors can be furloughed, however, this does not include income paid by way of dividend, this is for salary only. This does though include salaried individuals who are directors of their own Personal Service Company.
Directors will still be able to carry out particular duties to allow them to fulfill the statutory obligations that they owe to their company, provided that they do no more than is necessary. The duties are set out in the Companies Act 2006. Any decision to furlough a director should be properly minuted and noted within the company records. Directors need to be aware that they cannot do work that would normally generate commercial income or provide services on behalf of the company.
Regarding employees, and this will cover the directors now, the Employer is responsible for operating the scheme and claiming on behalf of the employee
The employer and the employee must agree to the furlough position, please note that this must be clear and in writing.
Be clear that if you have furloughed an employee, they cannot undertake any work for the business.
In order for the employer to qualify, they must have the following
•A UK payroll
•A UK bank account
•The employee must have been on the payroll prior to 28 February 2020
You can be on any type of contract, including
•Apprentices can be furloughed; special rules apply
This is not expected to apply to Public Sector Employers
The guidance has been updated to explain that employers can furlough staff “if you cannot maintain your current workforce because your operations have been severely affected by Coronavirus (COVID-19)”.
To be eligible for the grant, when on furlough, an employee cannot undertake work for, or on behalf, of the organisation. This includes providing services or generating revenue. Employers are free to consider allocating any critical business tasks to staff that are not furloughed. While on furlough, the employee’s wage will be subject to usual income tax and other deductions.
If someone has left your employment, or they were made redundant after 28 February, you can re-employ them and furlough them and claim their wages through the scheme.
Importantly, the online service to make the claim IS NOT YET AVAILABLE, HMRC expects it to be available by the end of April 2020.
If you cannot maintain your workforce because your operations have been severely impacted by Coronavirus, you can apply for the grant that covers 80% of the usual monthly wage cost up to a maximum of £2,500, plus the associated employer National Insurance contributions and minimum automatic enrolment pension contributions on that particular wage.
The scheme is temporary and in place for 3 months commencing 1 March 2020, this may be extended if necessary.
Individuals who employ nannies can furlough them as long as they pay them through PAYE and they were on the payroll before 28th February
A possible catch is an employee working on reduced hours or pay, they will not be eligible, this requires some clarity from the Government and HMRC, and employees on statutory sick pay will remain on that until well enough, they can then be furloughed.
Employees with more than one job can be furloughed from both; however they can also continue to work for one whilst furloughed from another.
Employees on Fixed Term Contracts can also be furloughed and their contract extended, however if the contract is not extended they cannot be furloughed.
Individuals who may be eligible but are not considered to be employees include
Office holders (to include company directors)
Salaried members of an LLP (Limited Liability Partnership)
Agency workers through an umbrella company
HMRC guidance for each is below
Office holders can be furloughed and receive support through this scheme. The furlough, and any ongoing payment during furlough, will need to be agreed between the officeholder and the party who operates PAYE on the income they receive for holding their office. Where the office holder is a company director or member of a Limited Liability Partnership (LLP), the furlough arrangements should be adopted formally as a decision of the company or LLP.
As office holders, salaried company directors are eligible to be furloughed and receive support through this scheme. Company directors owe duties to their company which are set out in the Companies Act 2006. Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, the board can decide that such directors should be furloughed. Where one or more individual directors’ furlough is so decided by the board, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned.
Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose, for instance, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.
This also applies to salaried individuals who are directors of their own personal service company (PSC).
Salaried Members of Limited Liability Partnerships (LLPs)
Members of LLPs who are designated as employees for tax purposes (‘salaried members’) under the Income Tax (Trading and Other Income) Act (ITTOIA) 2005 are eligible to be furloughed and receive support through this scheme.
The rights and duties of a member of an LLP are set out in an LLP agreement and in the absence of an agreement, default provisions in the LLP Act 2000, based upon company and partnership law. Such an agreement may include separate agreement between the LLP and an individual member setting out the terms applicable to that member’s relationship with the LLP.
To furlough a member, the terms of the LLP agreement (or any such agreement between the LLP and the member) may need to be varied by a formal decision of the LLP, for example to reflect the fact that the member will perform no work in the LLP for the period of furlough, and the effect of this on their remuneration from the LLP. For an LLP member who is treated as being employed by the LLP (in accordance with s863A of ITTOIA 2005), the reference salary for this scheme is the LLP member’s profit allocation, excluding any amounts which are determined by the LLP member’s performance, or the overall performance of the LLP.
Agency Workers (including those employed by umbrella companies)
Where agency workers are paid through PAYE, they are eligible to be furloughed and receive support through this scheme, including where they are employed by umbrella companies.
Furlough should be agreed between the agency, as the deemed employer, and the worker, though it would be advised to discuss the need to furlough with any end clients involved. As with employees, agency workers should perform no work for, through or on behalf of the agency that has furloughed them while they are furloughed, including for the agency’s clients.
Where an agency supplies clients with workers who are employed by an umbrella company that operates the PAYE, it will be for the umbrella company and the worker to agree whether to furlough the worker or not.
Limb (b) Workers
Where Limb (b) Workers are paid through PAYE, they can be furloughed and receive support through this scheme.
Those who pay tax on their trading profits through Income Tax Self-Assessment, may instead be eligible for the Self-Employed Income Support Scheme (SEISS), announced by the Chancellor on 26 March 2020.
Employees can provide volunteer work, as long as it does not involve providing a service or generate income for the business, similarly with training, this can continue as long as it does.
Some additional areas to be considered and noted, such as an employee pay varying, you can claim the highest of either
The same month’s earning from the previous year
The average monthly earnings for 2019/20
If the employee has been employed for less than 12 months, the claim os on their average monthly earning since they started work.
You can claim for any regular payments you are obliged to pay your employees, this includes wages, past overtime, fees, and compulsory commission payments, however discretionary tips and commission payments are not included.
Benefits in kind and salary sacrifice should not be included. COVID 19 also allows a change to salary sacrifice, however, advice should be taken in this regard.
What will be required when the claim is to be made
your ePAYE reference number
the number of employees being furloughed
the claim period (start and end date)
amount claimed (per the minimum length of furloughing of 3 consecutive weeks)
your bank account number and sort code
your contact name
your phone number
You will need to calculate the amount you are claiming. Importantly, HMRC will retain the right to retrospectively audit all aspects of your claim, so please take great care when you are furloughing employees that you DO NOT contact them regarding work.
You should make your claim using the amounts in your payroll – either shortly before or during running payroll. Claims can be backdated until the 1 March where employees have already been furloughed.
If appropriate, worker’s wages should be reduced to 80% of their salary within your payroll before they are paid. This adjustment will not be made by HMRC. There is a minimum period of 3 weeks in place for furloughed staff, when they return to work they must be removed from furlough, they can be furloughed again if required, but each instance must be for 3 weeks minimum
Important note on treatment for Corporation tax treatment
Payments received by a business under the scheme are made to offset these deductible revenue costs. They must, therefore, be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles.
Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.Callan Accountancy offers expert accountancy help and advice with a free initial consultation.