COVID – What Would Amy Do? – Furlough Scheme

With lock down being extended a further 3 weeks, many SME’s (Small / Medium Enterprises) may now decide ( if they didn’t previously) to furlough some of their staff and potentially themselves. LUCKILY Amy is here to help you out!

Intros

What is furloughing? The Scheme

The Scheme for Directors

Limitations for Small Businesses

Hits and Tips for Small Businesses

Links

Intros

  • Apologies for being an Accountant...
  • Focus on Small Business - 1 man bands to around the 25 employee mark. Same rules, I suspect very different applications and effects. 

What is furloughing? The Scheme

  • Under the Corona Virus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis.
  • All UK businesses are eligible. You will need a UK bank account and have a PAYE scheme active before the end of Feb.
  • You will need to:
    • designate affected employees as ‘furloughed workers,’ and notify your employees of this change - changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation
    • submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal open on the 20th April 2020. Get ready!
  • HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. It will be paid 4-6 days after portal submission.

 

WHAT WOULD AMY DO?

  • Make the assessment - check your forecasts, make a true and accurate assessment of what you business needs and take those decisions. 

    For help with forecasts, cash flows and future planning, check out Amy's video and help document here!

  • Be clear - the situation is this: there is no work for your employee to do now that this crisis has hit and/or you have been forced to close entirely and/or you can no longer afford to keep that employee on but are maintaining the business with other staff/resources AND you expect that employee to return after this period/you wish to retain the employee. You cannot claim if that employee is still working in any capacity. The principle is YOU WOULD HAVE LET THEM GO. 
  • Keep good records - be ready to defend those decisions. Communicate to your employees (correctly and appropriately via letter as well as any conversations) as to what this means to them and how you will maintain frequent communication. Keep all records safe - HMRC may ask for them in the future. I have a feeling that this is going to be regularly assessed for fraud and incorrectly claiming could result in severe consequences. 
  • This will be for employees paid via the payroll - any contractors, subcontractors, consultants or anyone paid via invoice will not be eligible. And it will only be for the amounts running through that payroll. So if Directors do qualify and you take part dividends or other benefits and part payroll it will only be the payroll element that falls under this scheme. 

 

Please direct your employees to this link should they have further questions.

 

The Scheme for Directors

  • You can claim for Owners/Directors via the scheme but ONLY WHAT IS GOING THROUGH the PAYROLL - PAYE. If you do not run a payroll at all you will not qualify. 
  • You are (as it stands) not allowed to work. You obviously have obligations as a Director you need to fulfil such as returns and other high level administrative responsibilities and it is unlikely you will be penalised for doing this during the time you have furloughed yourself. 
  • Same amounts apply BUT ONLY WHAT IS GOING THROUGH THE PAYROLL - HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.

 

WHAT WOULD AMY DO?

  • The chances are, if you are running a payroll at all, as a small business your directors amounts are likely to be for the minimums - at its highest the tax threshold at around £11.5k p.a.
  • Lobby the bleep out of this. My Colleagues and I in the finance world for small businesses are fighting for some clarity. I very much suspect that only PAYE element at 80% will NOT change. But - one thing I do think is VITAL for small business is that they are allowed to continue to work (maybe defined up to a certain amount of employees 10-25 and if you are deemed a micro entity up to £632k turnover). We should be able to continue to conduct marketing, maintain our social media, still make the sales/bookings we can make. The self-employed are allowed to continue to work. In the instance of small businesses, employees may need to be cut for hours/responsibilities but the chances are they are all vital in some capacity to keep the cogs whirring. Following the current guidelines for not being able to work at all will kill so many small businesses.
  • The ICAEW had some nice examples I liked, link here.

 

Limitations for Small Businesses

  • It does not apply to employees where you want them to continue working. So no reduced hours/day schemes. Small businesses have multitasking employees all of which are usually vital on a daily basis. It’s a great limitation for small businesses should they wish to keep trading. 

 

Hits and Tips for Small Businesses

  • If someone else runs your payroll for you but you are looking to apply for the funding yourself ensure you have access to a HMRC login with your PAYE scheme attached. This may take 10 days to send you a password if you have not used this system before.
  • If you wish to re-run the payroll for March and possibly April to take advantage of the new accounting systems implementing furlough integrations, Xero and Sage etc, do so before the end of the weekend otherwise you will not meet year end filing deadlines.
  • Be sure the claim covers employer NI and basic employer pension contributions. All the employee costs.
  • Un-furlough and re-furlough - so… you have to furlough an employee for a minimum of 3 weeks in one chunk, however after that you can bring them back for any period of time then re-furlough them, again for the minimum of 3 weeks.
  • If you’ve had a crap month - If as a director you put through less in Feb 2020 then you did in Feb 2019 or your average for 2019/20 if better than Feb or March this year be sure to apply for the HIGHER amount of the lot. See the Employees who pay varies section of the advice with HMRC.

Links

HMRCs Main Business Support Link

HMRCs Employees Info

The ICAEW had some nice examples, for Furlough advice, I liked - link here.

Slides from the HMRCs Webinar

Click here for Amys calculations sheet

Click here for Cash flow help and guidance

 

Notes: Please be aware that this is an ever evolving situation so please check this document regularly.