Month: June 2020

How will the furlough scheme change from July?

Since the Coronavirus Job Retention Scheme (CJRS) officially launched on 20 April it has enabled businesses to keep valued employees whilst facing the financial challenges brought about by the pandemic.

Chancellor Rishi Sunak has been clear about the fact that the government has always intended to review the scheme over the coming months, which has led to many rumours within business communities about how the scheme will change.

Fortunately, business owners and employers can now make clear decisions about what actions to take next as the government has confirmed that it will continue to pay CJRS grants from 1 July but will introduce a number of changes.

 

How will the furlough scheme change for businesses?

 

You can bring furloughed employees back 

From 1 July, you will be able to bring furloughed employees back into work. This will be a relief for both employees and employers, who can start returning to some level of normality.

 

Employees can work part-time on a flexible basis

You can bring furloughed employees back for any amount of time and any shift pattern, which is known as a ‘flexible furlough’. This means that if you want an employee to come back but are concerned about affording full-time wages, then you can agree to a number of hours for them to work. For example, if an employee works 40 hours, 5 days a week, you could ask them to work for 2 days a week (16 hours).

 

You will pay for the hours they work 

If you do bring a fully furloughed employee back on a part-time basis, you will pay them their normal wage for these hours including NIC and minimum pension contributions.
For the hours they do not work, you will claim furlough pay at 80% of the normal wage. This may mean that you will need to carefully manage payroll if you do make this decision.

 

The government grants will gradually decrease

As part of its strategy to restart the economy, the government will start to decrease the levels of grants that it is paying in monthly stages.
While the government will still cover the same level of grant for July (80% of wages to a maximum of £2,500pm), it will gradually decrease the grant from August until it closes the scheme on 31 October 2020.

Throughout this period, furloughed employees will still receive 80% of their wages but employers will have to start contributing to this.

This is how each stage will look like this:

  • From 1 August, employers can no longer claim Employer NI and pension contributions, but the government will continue to pay 80% of wages.
  • From 1 Sept, employers will have to contribute 10% of wages, while the government will contribute 70%.
  • From 1 Oct, employers will have to contribute 20% of wages, while the government will contribute 60%.

The conditions for furloughing will also change 

From 1 July, the conditions for applying for the scheme will also change.

  • You will only be able to claim for furlough grants for employees that you have successfully claimed for before.
  • The employee must have been previously furloughed for at least 3 consecutive weeks between 1 March and 30 June. So, if you had furloughed an employee on the 10 June, they will be eligible, but not after this date as this will not meet the minimum of 3 consecutive weeks.
  • The cap for the number of employees that you can furlough in a single claim is based on your previous claims. So, if you submitted three monthly claims and the total number employees furloughed in each respective claim was 30, 20 and 50, the maximum number of employees you can furlough in one claim is 50.
  • Although flexible furlough agreements can last any amount of time, unless otherwise specified the period that you claim for must be a minimum of 7 days.

What does this mean to you as a business owner and employer?

 

You should support home working or make a safe workspace

If you have employees returning to work from being furloughed, then it is your responsibility to ensure that they are working in a safe work environment.

If possible, do your best to get your employees set up so they can work from home. If this is not possible, then ensure that your work environment is prepared so people can maintain social distancing and other measures.

The government provides in-depth guidance on safe working during the coronavirus which includes working in offices, factories, labs, shops and vehicles.

 

You should spend some time breaking down the calculations

If you have agreed to put your employees on a ‘flexible furlough’, rather than a full furlough then you will have to spend some time to ensure that they are being paid the correct amount.

You will have to calculate what they are owed in terms of full wages and 80% furlough payments.

If you have been making the claims since April you will probably be familiar with the full list of steps to take before making a claim.

The government has now included guidance on the steps to take to calculate your employees usual hours and furloughed hours.

There is also an example of how to make these calculations, which breaks down each stage including calculating usual hours, furloughed hours, NICs and pension contributions.

 

Be clear about your agreements with employees

It is advised to put your new flexible furlough agreement with your employees into writing, which must be done in accordance with pre-existing employment law.

 

Be clear about your criteria for selecting employees

Take care when selecting your criteria for selecting which furloughed workers will return part-time and defining their hours, make sure that you highlight these so that they are fair, reasonable and objective and be wary of discriminating.

 

Be wary of scams

It is important now, more than ever, as we all get used to working remotely to maintain due diligence when it comes to cyber security.

There have been many reported cases of businesses who have fallen foul of a scam by fraudsters exploiting the challenging situation that we are all facing.

One scam comes in the form of a phishing email scam pretending to be from HM Revenue and Customs. The intention is to trick business owners into providing personal and financial details.

If you suspect a potential scam, you can report it to Action Fraud.

 

Remember: support is always available from your family-run accountants and business advisors

These are difficult times and we are doing all that we can to support our clients and our community. 

If you need advice and support with managing the complexities around furlough and payroll, understanding what the law requires of you as an employer, or support to boost cashflow, don’t be afraid to talk to one of our specialists at hello@shenward.com

Offsetting covid-19 losses against previous year’s profits

The economic fallout from the COVID-19 pandemic is already beginning to cripple even the most resilient of markets, and thus threatening national and global growth. 

In the three months that the UK has spent in lockdown, we’ve witnessed businesses of all sizes dramatically slow down, if not completely halt trading activities, meaning many are heading for a significant loss in trading profits.

But, thanks to the treatment of tax losses, COVID-19 losses can be offset against previous or future years’ profits. 

 

What does this mean?

This means that ordinarily profitable businesses who are already in or expect to be in a tax loss position due to COVID-19 related circumstances, can offset losses to either;

  • Reduce future tax bills (loss carry-forward rule) or;
  • Claim back tax from previous years (loss carry-back rule)

Both options will have a positive effect on cash flow allowing businesses the financial breathing space to begin rebuilding.

 

The loss carry-back rule

The biggest advantage of the introduction of the loss carry-back rule is that businesses will have the opportunity to claim back much-needed cash if they have incurred a significant loss in comparison to previous years’ profits.

However, as with all other tax regulations and schemes, there are certain rules which apply:

  1. A tax loss incurred during the 2020 or 2021 financial year can only be offset against the previous years’ profits. For example, 2021 losses cannot be offset against 2019’s profits. However, there is an exception to the rule if the business has closed and such can claim Terminal Loss Relief. 
  2. Previous year refers to the preceding 12 months rather than the previous financial year the company operates.

 

The loss carry-forward rule

As long as trade continues, businesses who experience profit loss due to COVID-19 can carry forward this loss to offset against future profitable years, thus freeing up cash that would have ordinarily be used to pay tax bills.

If your company is using a carried forward trading loss in an accounting period that ends before 1 April 2017, you can only use the relief against profits of the same trade.

Where your company is using a carried forward trading loss in an accounting period that starts on or after 1 April 2017, the situation depends on when your company made the loss in question. If your company made the loss;

  • before 1 April 2017, it can only be used against profits of the same trade
  • on or after 1 April 2017, it can normally be used against your company’s total profits

 

Group Relief

Where groups of companies meet the group relief criteria (75% ownership), any loss-making companies can offset their losses to other profitable members of the same group. This enables the group to pay corporation tax on the net profits made on the group as a whole where loss-making entities are present. This is one of the key benefits for trading as a group of companies. 

 

Next steps

We’d strongly recommend that businesses begin to look at their expected losses sooner rather than later and work with their accountants to prepare the 2020 tax return way before the deadline.

If you require assistance from any of our trained specialists, please email hello@shenward.com.

COVID-19 Financial Support: Updates to Furlough and Self Employment Income Support Schemes

Over the course of the last month, there’s been a lot of speculation about how long the government can continue to financially support individuals and businesses across the UK.

Whilst many of the rumours weren’t backed up by facts, one particular speculation was confirmed by Chancellor Rishi Sunak two weeks ago; changes to the furlough scheme will occur. 

Up until Friday 29th May, we had little idea about the changes that would come into force and how this would affect both employees and employers. However, the Chancellor has now confirmed what the amended scheme will look like.


So, what’s changed?

The CJRS currently allows business owners to furlough staff who are paid via PAYE and claim up to 80% of their wages back from the government up to a maximum of £2,500 for each employee. Up until the end of July 2020, the scheme will continue in its current form.


But then what happens?

  • After 30th June 2020, employers will not be able to place any non-furloughed employees on furlough. Realistically, this means the employee must be on furlough by 10th June 2020 to complete the minimum 3-week furlough period. 
  • From 1 July 2020, employers can place employees on furlough on a part-time basis, the 3-week rule will no longer apply. 
  • Claims for furlough periods up to 30 June 2020 must be claimed by 31 July 2020.
  • From 1 August 2020, employers can no longer claim Employer NI and pension contributions, but the government will continue to pay 80% of wages to a maximum of £2,500pm. 
  • From 1 September 2020, employers will be required to contribute 10% and the government will contribute 70%. However, the employee will still receive a minimum of 80% of salary/pay.
  • From 1 October 2020, the employer will be required to contribute 20% and the government will contribute 60%. However, the employee will still receive a minimum of 80% of salary/pay.
  • The furlough scheme will close on 31 October 2020. 


How about the self-employed, do they get additional support?

In the daily briefing held 29th May 2020, Chancellor Rishi Sunak also advised that self-employed individuals will receive a second and final taxable grant.

This time, it will be 70% of trading profits to a maximum of £6,570 over a 3-month period- this equates to £2,190 pcm.

Claimants will be required to apply again in August, and it is expected they will receive notification from HMRC in due course in the same way as they did with the prior grant. Per our understanding, the eligibility for this scheme remains the same. 

 

Shenward’s Insight and Analysis

Extension of Furlough Scheme

It’s certainly a welcome extension for businesses who have placed employees on furlough. During August, employers will be required to settle the Employer’s NI however, given that most small employers claim the Employers’ NI allowance of £4,000pa, they would only be required to fund 80% of the pension contributions thus we do not expect a significant impact to businesses’ cash flow. 

Where we do expect an impact is from September and October where employers will be required to fund 10% and 20% respectively. Particularly for those industries which are most affected such as leisure and hospitality, if their businesses have not recovered by then, how will they able to afford 10% / 20% of employees’ wages?

Additionally, it’s certainly an interesting move from the Chancellor to close the scheme to new entrants from 1 July 2020 as a trade-off to allowing ‘flexible furlough’. Realistically, employers have until 10 June to decide whether they wish to place any non-furloughed employees and benefit from this flexibility. 


Self Employed Income Support Grant

Shenward welcomes the extension to the SEIS grant although it’s set to reduce to 70%. Although our concerns raised through our survey https://www.bmmagazine.co.uk/news/alarming-number-of-self-employed-dont-qualify-for-government-support/remain valid. Particularly the directors of owner-managed businesses and new businesses established since 6 April 2019. 

There are still several options that business owners and self-employed individuals can explore to help with cashflow during the pandemic. If you’d like tailored advice or support with applications, please email hello@shenward.com.

 

Update: Changes to the CJRS have since been made.
Please see  https://www.shenward.com/how-will-the-furlough-scheme-change-from-july  for further information.

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