Job Retention Scheme and additional payment deferrals
With changes being announced every day, it can be a tough job to stay on top of all the updates. Boris Johnson’s Friday update included some big measures to help businesses and employees.
Job Retention Scheme
There was a lot of speculation before Johnson’s update on 20th March as to how the government was planning to further support employers. What they have come up with, which has been received gratefully by many, is the Coronavirus Job Retention Scheme. As suggested by its name, the scheme’s primary objective is to prevent the laying-off of employees whose salaries would have been unpayable.
For employers to access this support, they will first need to identify and designate “furloughed workers” (workers who would have been temporarily laid off) and notify the employees of this change of employment status. This communication with the employee must be kept, but can be an email. This will largely depend on their employment contract and may be subject to dispute or negotiation. Employers will then need to submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. Once the furloughed workers have been identified, HMRC will reimburse up to 80% of their salaries; this is capped at £2,500 per employee per calendar month.
The £2,500 cap relates to the gross salary element only, and any related employer contributions towards NI or pensions can be claimed in addition. For employees who’s pay varies each month, if the employee has been employed for a full twelve months prior to the claim, you can claim for the higher of either:
o The same month’s earning from the previous year
o The average monthly earnings from the 2019-20 tax year
If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
The scheme is open to any employer in the country and will cover the cost of wages backdated to 1 March 2020. It will continue for at least three months and can include workers who were in employment on 28 February. Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme. A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for, or on behalf of your organisation.
Although this scheme does offer longer term financial support, many businesses will not see a boost to their cashflow for some weeks, as the repayment system in not expected to be up and running until late April. In the meantime, it may be necessary for businesses to make use of the Coronavirus Business Interruption Loans.
Deferred VAT and Income Tax payments
In addition to PAYE and tax liabilities to HMRC, the government have announced a break for VAT and income tax payments. For self-employed individuals, income tax payments for self-assessment that would have been due in July 2020 will now be deferred to January 2021. You will be considered automatically eligible for this if you are self-employed, and no applications are required.
The VAT payments deferral scheme will operate from 20 March until 30 June 2020. There is no requirement for businesses to make VAT payments during this period. Businesses will then have until the end of the 2020/21 tax year to settle any liabilities that have accumulated during the deferral period. As with income tax deferrals, there is no need for businesses to apply.
Note that payment deferrals are not automatic, and Direct Debits should be manually cancelled and reinstated after 30 June.
The government are looking at how best to serve self-employed individuals, as much of the focus has been on assisting businesses. Currently, self-employed people can access Universal Credit at a rate equal to Statutory Sick Pay. They are also able to apply for a 3 month mortgage holiday through their mortgage provider. We are expecting communications this week that will provide further clarity for these people.
It is important to keep informed about the updates coming daily from Boris Johnson and his team. If you have any questions about how the government are rolling out the pledged schemes, please get in touch. You can email Misty on firstname.lastname@example.org or call the office on 01392241228.