Foster Mann UK – Update from ICAEW regarding Furloughing of Workers

This is all still a bit up in the air with new information being released daily and many rumours flying around about how it will actually work. Here is the ICAEW’s take on it so far:

25 March 2020: the following is our understanding of this policy and how this will work based on the information published so far. It should not be relied on for advice at this stage but is intended to give an indication of how the scheme will work:

Rules as outlined in official statements released at 23 March 2020:

1. Furloughed members of staff must not work for the employer during the period of furlough.

2. Furlough is from 1 March 2020, so is to be backdated. It will last for at least 3 months and will be extended if necessary. Note that while the scheme is backdated to the beginning of March as it is intended to support all those employed then, a firm will only be eligible to claim the grant once they have agreed the furlough with their staff and staff have stopped working for the employer. This will of course be subject to employment law in the usual way.

3. It is available to employees on the payroll at 29 February 2020.

4. All UK businesses are eligible, 'any employer on the country, small or large, charitable or non-profit' to use the Chancellor's words.

5. The scheme pays a grant (not a loan) to the employer.

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 payroll, using the Real Time Information (RTI) system as usual, as required by the employment contract. This contract may be renegotiated but that is a matter for employment law. So RTI system reporting of payroll will continue as normal.

8. Scheme will be administered by HMRC:

* Relevant employees must be designated as furloughed employees.

* Employers will submit information to HMRC through a new online portal.

* As this will take time to build, businesses should look to the Coronavirus Business Interruption Loan Scheme to support cash flow in the meantime. The narrative used in the information released so far says 'if your employer cannot cover staff costs due to COVID-19 they may be able to access support...'. This is a conditional phrase which may relate to existing funds available to the employer. We do not yet know how these might be determined, nor whether there is a bar of some description.

       9.    Maximum grant will be calculated per employee and is the lower of:

* 80% of 'wages'. The notes published so far, use the phrase 'wage for all employment costs up to a cap of £2,500 per month'. It is our understanding that this includes employers' NIC and pension contributions. Wages will be determined by reference to a defined period (yet to be announced).

* £2,500 per month.

Illustration

X Ltd employs Mr A at an annual salary of £24,000, so £2,000 per month. Mr A has opted out of auto enrolment.

Each month, Mr A currently receives net pay of £1,665 which is after deducting PAYE of £191 and employees NIC of £144. On this salary, the employer pays employers' NIC of £174.

The available grant for the employer is the lower of

(a) 80% of (£2,000 + £174), and

(b) £2,500

So a grant of £1,739.

The cash required by X Ltd to furlough based on maintaining the existing salary is £435 per month. It is a matter for employment law whether the employer is required to pay this top up. Discussions with employees may have agreed that the employee has agreed to a different arrangement during their furlough.

Notes to illustration based on an extended understanding of how the scheme will work

1If Mr A had not opted out of auto enrolment, X Ltd would also be making pension contributions on his behalf. If so, the available grant is based on 80% of (gross salary + Employers' NIC + employers pension contributions paid), subject to the monthly cap of £2,500.

2We understand that the rules for the scheme are being designed with underlying reference to employment law. If the individual is still under contract, Mr A can expect to receive his salary in full. The £1,739 grant paid to X Ltd should not be taken as the new maximum cost of employment to the employer unless the contract has been redrafted.

3Subject to the employment contract and any amendment, the salary which the employer actually pays the employee during the furlough period may be different to the pay paid used as the reference period and upon which the grant figure is based.

Pubco - a scenario

In the following illustration, the business has already closed as instructed by the government. We have had a number of enquiries along similar lines and are seeking clarification of our understanding of the rules apply.

Mr & Mrs Fuller are the tenants of a pub. They have a substantial wet and food trade as the pub is in a coastal location and does good trade over the Summer. The pub is open all year round.

Mr & Mrs Fuller operate the pub through a limited company (Pubco). They take salaries of £8,600 each and withdraw profits of £30,000 each in the form of dividends. They live above the pub and work long hours being in the pub every day.

Pubco employs three permanent staff supplemented by extra seasonal staff in the Summer months and at Christmas.

The pub closed on 20 March as instructed by the Prime Minister. and following the Chancellor's announcement on 20 March, Pubco has furloughed its staff other than Mr & Mrs Fuller who are still living above the pub and dealing with the company administration. The contracts of employment of the other staff have been varied to permit furloughing and the three permanent staff members have agreed to accept a pay reduction to 80% of the previous level. The seasonal staff for this year have not yet been hired.

Our understanding is that Pubco will be eligible to receive the government grant support under the Coronavirus Job Retention Scheme for the monthly wages of the 3 permanent staff members. No grant support is available to support the living costs of Mr & Mrs Fuller.

Mr & Mrs Fuller will need to look for alternative support while the pub remains closed.

Foster Mann (UK) - Coronavirus Job Retention Scheme

I am sure I am not the only both confused and very used to hearing the term ‘furloughed worker’ without having any clear guidance on what this means. The below is something we received from an employment/HR lawyer in Leeds which I thought I should share with you. There is still no clear guidance on whether Directors will be able to furlough themselves, though I really do doubt that this is going to be a scheme stretched out to Directors, especially those who are sole Directors of companies with no other employees.

On Friday afternoon the Chancellor, Rishi Sunak, announced an unprecedented package of measures to support the UK economy through the COVID-19 crisis. The government aims to help employers to retain their staff when they may otherwise have had to make them redundant.

At the time of writing we have scant information on how the Coronavirus Job Retention Scheme will work in practice. What we do know is that the government will pay 80% of the salary of any employees who would otherwise have been laid-off.

Whilst we wait for further details to be announced, our initial understanding is that:

• Any employer in the UK can apply to the Scheme, which will be backdated to 1 March and run for an initial period of 3 months.

• Employers will have to 'furlough' employees who have been or would otherwise be laid-off or made redundant. Employees who have already been dismissed can be re-engaged to benefit from this Scheme.

• Affected employees need to be informed by their employer of the change in their employment status, and in most cases (where the contractual right to lay staff off does not exist) must consent to the change in their terms and conditions.

• Furloughed employees remain employed and bound by their terms and conditions of employment so they are not entitled to a redundancy payment and must not do any work during the furlough period.

• Employers can continue to pay the furloughed employees and will be able to reclaim 80% of their salary (up to a cap of £2,500 per month) from HMRC. There does not appear to be any obligation on the employer to 'top up' the payment from the government to 100% of the employees' usual salary, though it seems an employer would be free to do so.

This Scheme forms part of a wider package of measures to keep businesses going during this difficult time.

Our initial advice is for employers to review their staffing needs and identify those members of staff who could be furloughed to enable them to access the Scheme as and when the details of it are known. Contracts of employment should then be reviewed to identify if the contractual right to lay staff off exists. If there is no contractual right to lay-off conversations will need to be held with employees to obtain their consent to be furloughed as an alternative to being made redundant.

We have also received an example of an ‘Employee furlough letter’ which can be adapted to your own letterheading and sent out to staff. I have attached this as an example for you to send out to employees you plan on making furloughed, but please remember that nothing is set in stone yet and so these letters may not be 100% accurate.

SSP and Self-Isolation for staff!

As I am sure you will all be too well aware, the public have been advised to elf isolate for 14 days if they or any of their household have any symptoms of COVID-19. If your employees are self-isolating because of COVID-19, from 13 March 2020 you can claim SSP. This includes individuals who are caring for people who are self-isolating in the same household and therefore have been advised to conduct a household quarantine.

When does SSP apply?

The government is legislating for SSP to be paid from day 1, rather than day 4 after three ‘waiting days’, of the absence from work due to sickness or the need to self-isolate due to COVID-19. This legislation is to be retrospectively applied from 13th March once it is passed.

Do I need a sick note?

From Friday 20 March (today) onwards, those who have COVID-19 or are advised to self-isolate will be able to obtain an ‘isolation note’ by visiting NHS 111 online and completing an online form, rather than visiting a doctor. This is vitally important as it saves valuable NHS time and does not require contact or communication via the already over-worked NHS staff. For COVID-19, this replaces the usual need to provide a ‘fit note’ after seven days of sickness absence. As yet, this form is not available but as an employer you will need confirmation from the employee that they are off work due to COVID-19.

How much SSP is paid?

SSP is aid at the rate of £94.25 per week and is recoverable in this instance from HMRC. HMRC are due to release details of how this is going to be recoverable by the employers in the coming weeks. Usually, SSP is recoverable by offsetting against the total PAYE/NIC payable. We shall advise further on this once we are aware of the process laid out by HMRC. As with normal SSP. You can still choose to pay above the SSP rate if you wish to or are contractually obliged to for any reason.

What happens at the end of the 2 week period if the employee is still off sick?

As it stands today, the current SSP rules will apply after 2 weeks and a fit note will be required from the doctor. It is likely that this may be amended shortly by HMRC and again as soon as further information is available, we shall update you as quickly as we can.

Foster Mann (UK) Update – Some may be repeated information but important to re-iterate

The government has issued a number of measures that aim to help businesses through these difficult times. We have listed these measures below and added some practical explanations.

We understand that now is the time when we, as your financial advisers, can prove ourselves!

The Measures:

Coronavirus Job Retention Scheme

HMRC will reimburse 80% of employee’s wage cost, up to a maximum of £2,500 per month.  We also need to wait until HMRC set up the system for re-imbursement as their current systems are not set up for such reimbursements. We estimate that we will have an update by 6th April 2020 as that is the start of the new tax year.

Deferring VAT and Income Tax payments

This is an automatic scheme and no UK business is required to pay VAT until 30th June 2020. Payments on Account for Self-Assessments that are due on 31st July 2020 are deferred to 31st January 2021. The government has not mentioned the PAYE and CIS tax but we are certain that these can also be deferred if we are to ask HMRC.

Statutory Sick Pay relief package for SMEs

The government will pay 2 weeks’ worth of SSP per eligible employee for employers with less than 250 staff. The employer should maintain records of staff absences and payments of SSP. This system is not set-up yet and we will know more once the repayment mechanism is introduced. As per the first point, we estimate that we will know more about this by 6th April 2020.

12-month business rates holiday for all retail, hospitality and leisure businesses in England

This is automatic if your business is eligible. You will know if you qualify once the local authority in which you are based, sends you a Council Tax bill, sometime in April. If you believe that your business falls within the above sectors but the council has not applied the “holiday”, please let us know when we speak.

The Retail and Hospitality Grant Scheme

If your business qualifies, your local authority will write to you. We estimate this to be some time towards the end of April/beginning of May. There are 2 levels of grants as follows:

For businesses in these sectors with a rateable value of under £15,000, the business will receive a grant of £10,000.

For businesses in these sectors with a rateable value of between £15,001 and £51,000, the business will receive a grant of £25,000.

Support for businesses that pay little or no business rates

Your local authority will write to you if your business qualifies. We estimate this to be towards the end of April and the scheme entails a small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief

Coronavirus Business Interruption Loan Scheme

This scheme commences from Monday, 23rd March 2020 and an eligible business will be able to raise a loan from their bank at 0% interest for the first 12 months. You should contact your bank directly to discuss funding. Please bear in mind that we liaise with banks and raise finance for businesses on daily basis so this is why we recommend you speak to one of us beforehand. Prior to the conversation, please think about the following:

How has Corona 19 affected your business?

How much money has your business lost and will lose? You should have a list of cancellations/postponements of contracts if you sell B2B. If you sell B2C, you will need daily sales for last 3 months.

How have you started to reduce the business’ costs?

How much money you wish to raise?

We understand the importance of your business as it is yours and your family’s livelihood and we will work extended hours to help and guide you but please understand that our mobiles and e-mails will be extremely busy during this time so if we are unable to pick up the phone when you call, it is because we are helping somebody else with their business, so please bear with us and we will call back as soon as we can.

YOUR BUSINESS DOESN’T HAVE TO BE INFECTED TO BE AFFECTED!

 We at Foster Mann UK have put together ‘A Guide for Small Businesses’ which I believe may be helpful to you over the coming days, weeks and months.  We hope you will find it helpful and interesting.

Coronavirus Business Interruption Loan Scheme

Many details remain to be worked out, but to be eligible businesses must be:

• Be UK based, with turnover of no more than £41 million per annum

• Operate within an eligible industrial sector (subject to sector exclusions)

• Have a sound borrowing proposal, but insufficient security to meet a lender’s normal requirements

• Be able to confirm that they have not received de minimis State aid beyond €200,000 equivalent over the current and previous two fiscal years.

The scheme will be operated through High Street banks for £1,000 to £1.2m. Government guarantee to cover 80%, with the banks retaining residual 20% risk. This will necessitate a credit process, which will hopefully be as streamlined as possible.

We are closely following developments and will provide us timely updates as soon as more information becomes available.

Statutory Sick Pay

The eligibility criteria for the scheme will be as follows:

• The refund will cover up to 2 weeks’ SSP per eligible employee who has been off work because of COVID-19

• Employers with fewer than 250 employees will be eligible - the size of an employer will be determined by the number of people they employed as of 28 February 2020

• Employers will be able to reclaim expenditure for any employee who has claimed SSP (according to the new eligibility criteria) as a result of COVID-19

• Employers should maintain records of staff absences and payments of SSP, but employees will not need to provide a GP fit note

• Eligible period for the scheme will commence the day after the regulations on the extension of Statutory Sick Pay to those staying at home comes into force

• The government has yet to set up the repayment mechanism for employers and again THL will provide updates as soon as more information becomes available.

Business Rates

The Government announced that it will provide additional funding to support small businesses that already pay little or no business rates because of Small Business Rate Relief (SBBR). This will provide a one-off grant of £10,000 to businesses to help meet their ongoing business costs. You should be contacted by your local council for this and should not need to apply. There shall be no business rates payable by any companies in the leisure and hospitality industry for 2020/21 and there will also be £25,000 grants available to the hospitality sector businesses that pay between £15,000 and £51,000 in rates.

Paying VAT, PAYE and Corporation Tax

The latest from HMRC is that they will be much more flexible than usual when agreeing time to pay arrangements with small businesses.  They have set up a dedicated helpline, which opens at 8am, on 0800 0159 559, however, and as to be expected, it is extremely busy. 

When calling you should have the following information to hand:

• Details of how much tax you believe you owe.

• A note of how much you believe can realistically afford to pay.

• Details of how the coronavirus is affecting your business.

Insurance

Businesses should check with their insurance provider to see if they are covered for business interruption although most policies are dependent on damage to property, which will exclude pandemics. Some businesses may have purchased a specific add on relating to notifiable diseases, but some of these will still specify damage to the building. Some businesses may have purchased supply chain or denial of access cover which may meet their needs in this case.

Rent and other large ongoing liabilities

Rent is normally paid quarterly in advance.  Businesses should contact their landlords and other supplies to discuss payment terms or payment holidays. 

Employment Issues

Working from Home

With the latest advice from the government to employees being to avoid the office where possible, home working can work very well on both sides.  You will need to consider the most effective and efficient ways in which you can keep in contact with the homeworker, for example, the frequency of email reporting, telephone contact or attendance at the office for meetings or training.

Other issues which will need to be considered are who is responsible for providing and maintaining furniture and equipment, insurance and security matters. Employers’ health and safety obligations apply to homeworkers in the same way as they do to employees who work on the company’s premises and so you should carry out a thorough risk assessment before any home working arrangement begins and review it regularly.

Lay-offs and Short-time Working

Lay-offs and short-time working are alternative actions to compulsory redundancies and are often used by employers as an attempt to mitigate financial difficulties. Lay-offs and short terms working are only intended as temporary measures and, if the work situation does not improve, redundancy is likely to be the next step.

A business can only impose a lay-off or short-time working arrangement where there is a contractual right to do so. Where there is no contractual right to impose a lay-off or short-time working, a business will need an employee’s express consent before introducing them.

Redundancy

Redundancy is a fair reason for dismissing an employee but only if a full and fair consultation process is carried out and the reason for the redundancy dismissal is the closure of a business or workplace or a reduced need for employees to carry out work of a particular type.

An employer may decide to offer voluntary redundancy to employees as an alternative to compulsory redundancy, although there is no legal requirement to do so but it is good practice as it may provide a way of avoiding, or at least reducing, the need for compulsory redundancies. 

Adequate time must be allowed for consultation on the redundancy plans and this will be at least:

• 30 days before the first redundancy where there are 20 to 99 proposed redundancies; and
• 45 days before the first redundancy where there are 100 or more proposed redundancies.

Where there are fewer than 20 proposed redundancies, the consultation period is not specified but employers should allow at least two weeks.  In any redundancy situation, employers must consult with individual employees. In addition, employers must consult with trade union or elected employee representatives if more than 20 employees are affected within a 90-day period. This is known as collective consultation.

These are challenging times but we as your accountants are here to support you and your business every step of the way!

The greed and brutality of HMRC

I received the article below yesterday from Southbank Investment. It was published by Nick O’Connor and I feel it is something that needs to be shared with you.

The lack of thought, care and understanding shown by H M Revenue & Customs really took me back. Have a read:

HMRC have won a battle to tax 40% of a now dead woman’s estate, simply because she transferred her money from one pension fund to another as part of her divorce. 

Why were they able to do this? Because the woman in question was terminally ill. In fact, she died a few weeks later, and her presumably grieving sons then had to fight a few years’ worth of court battles. 

It’s worth mentioning, of course, that the amount of money didn’t change. Nor did she gain any additional bonuses as a result of the transfer.

 She simply wanted to move the money so her husband – whom she was divorcing – couldn’t access it. 

And the taxman leapt at the chance to take 40%, which says a lot.

Automatic Enrolment... Are You Compliant?

Before we start, let's take a look at the complexity of the automatic enrolment process.

Automatic enrolment is here. By now, the majority of companies will have passed their staging date and for the rest, it will be fast approaching. By the end of 2018, all UK employers will be automatically enrolled. 

For many, this is a leap into the unknown and the administrative burden is too much to cope with. It is estimated that the administration involved is as much as up to 80% of a full time employee's workload.

For small businesses like yours, the cost of this may not be viable.

The day to day legislation requires great detail and gets much more complicated the more employees you have. For companies with staff whose pay fluctuates on a monthly basis or who work part-time, ensuring full compliance with the scheme could be a potential nightmare!

The fines for non-compliance can be huge and hence avoiding these is a must.

We are helping all of our clients through the automatic enrolment process by ensuring they are fully compliant before their staging date. We answer any questions our clients have and correspond with the Pensions' Regulator with any changes in circumstances on their behald. 

f you feel lost or feel you may not be compliant, we are here to guide you through the process and ensure full compliance.