There is much confusion about the Coronavirus Job retention scheme and the terms under which it can be operated. The questions that need clarifying are:
- What is a furloughed worker
- Does it apply to directors too
- How much do I need to pay them
- What do I declare to HMRC
- When will the refund be made
The comments below are based on the current understanding of the government advice and hopefully there will be proper advice forthcoming soon. In response to the questions above:
- A furloughed worker is someone who is sent home and not expected to work and will continue to be paid by the employer. This means that any job sharing or being on call will disqualify them from being furloughed. This means that many employers will not be able to furlough their employees, or have to pick between ones who will continue to be paid and work, and those not expected to attend, but will still be paid.
- There is nothing to say that directors do not qualify. Where a business has shut down and is no longer open, and therefore not receiving any income then the director may not be able to work and should therefore be able to claim. Where work is carrying on and income being received, or indeed the director is on call (a service engineer for example) then they will not be able to claim.
- This is very unclear as the employers and employees advice differs on the gov.uk website. The employers site states that “HMRC will reimburse 80% of furloughed workers wage costs” and in no way refers to only paying paying them 80% of their usual wage. However the employees site states “Your employer could choose to fund the differences between this payment and your salary, but does not have to”. It appears therefore that it may only be necessary to pay 80% of the usual pay and recover that in full from HMRC. The employer will therefore not be funding the 20% difference between the full pay and that refunded by HMRC.
Further guidance is also needed on what salary needs to be declared, especially as hourly paid and zero hours employees will be paid a different amount every month.
- The assumption is that the figure to be declared on the claim to HMRC will be the “usual” regular pay amount (eg £1000pm) and that will therefore be the figure on which the 80% is paid (£800 in this example). It would appear that there will be no funding for the employers National Insurance which will have to be covered by the employer.
This amount declared to HMRC for claim purposes (eg £1000pm) may differ to the sum on the payroll if indeed the employee is only being paid 80% (ie £800pm) of their usual pay. There is no reference to pension payments and as the employee is being retained on the payroll, these presumably continue in the same way as other employment rights. There is also some concern from employers over accrued holidays, as in 3 months the employee will accrue a week’s holiday and could ask for it just when the employer is desperately trying to get the business back on it’s feet.
- While it states on the employers section of the gov.uk website that “HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers” the expectation and information from sources within HMRC indicate that this will be the end of April at the earliest so employers will have to fund payments in the meantime.
Hopefully this clarifies things a little although there are some major unanswered questions, and these will be addressed as soon as HMRC release the details. Further information should appear on these links in due course, but the Coronavirus Job retention scheme should enable employers to be ready to continue when the crisis ends. You should seek professional advice before taking any steps based on these contents. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”