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The last date to furlough an employee under the Coronavirus Job Retention Scheme has now passed but, from 1st July, employers can bring furloughed employees back to work for any amount of time and any work pattern, while still being able to claim the grant for the hours not worked.
This option only applies to employees who have previously been furloughed for at least three consecutive weeks taking place any time between 1st March and 30th June 2020, with the exception of those employees returning from statutory parental leave.
Another consideration is that the number of employees that can be included in any single claim period starting from 1st July is capped at the maximum number of employees claimed for in any claim ending by 30th June.
For example, if an employer has submitted three claims for thirty, forty and thirty employees then the maximum number of employees that could be furloughed in any single claim starting on or after 1st July would be forty.
To flexibly furlough employees, the employer will need to agree this with each employee and keep a written, signed agreement that confirms the new furlough arrangement. It is essential that the agreement is consistent with employment, equality and discrimination laws and it must be kept on file for five years.
Flexible furlough agreements can last for any amount of time and an employee can enter into a flexible furlough agreement more than once.
There are a couple of traps to avoid. Prior to 1st July, a furlough period must be for a minimum of three consecutive weeks regardless of whether this period ends before or after 1st July.
For example, a previously furloughed employee can start a new furlough period on 22nd June which would have to continue for at least three weeks. As a result, the first date the employee could be flexibly furloughed would be 13th July.
After 1st July, employers cannot make claims that cross calendar months, so in this scenario, the employer would need to make a separate claim for the period up to 30 June.
For worked hours, the employee must be paid at their contractually agreed rate of pay.
For employees paid at the National Living Wage or National Minimum Wage level, these rates went up on 1st April. Although this does not impact the Job Retention Scheme which is based on prior earnings, these will apply to the pay for hours worked under flexible furlough. The new hourly rates are:
National Living Wage £8.72
21-24 Year-Old Rate £8.20
18-20 Year-Old Rate £6.45
16-17 Year-Old Rate £4.55
Apprentice Rate £4.15
Whilst there is no maximum length for claim periods, from July, claims cannot cross months. As a result, for every furloughed employee, there is an effective end period on 30th June which is a particular consideration for weekly paid staff as this is a Tuesday.
Going forward for the remainder of the lifecycle of the scheme, for weekly paid staff, there will be a misalignment between the pay period and the claim period accordingly.
The final date for a claim for periods ending on or before 30th June is 31st July 2020.
From July, an employer can only make one claim for any period which has to be a minimum of seven days and claim periods must not overlap. As a result, all furloughed and flexibly furloughed employees need to be included in the claim even if they are paid at different times.
The claim can continue to be made before, during or after payroll processing and a claim can be made up to fourteen days before your claim period end date.
However, for flexibly furloughed employees, the claim should only be made once there is certainty on the number of hours worked during the claim period.
For a flexibly furloughed employee, each claim period will need to show the usual hours worked, the actual hours worked and furloughed hours.
There are two different calculations for an employee’s usual hours, depending on whether they work fixed or variable hours.
Variable hours apply if either:
The employee’s working pattern does not have to match their pay period. For instance, an employee could be contracted to work forty hours in a five-day week but be paid monthly.
In this example, the usual hours in July would be 184 as a working day is eight hours and there are twenty-three working days in July.
For employees whose pay varies by the amount of time worked, the usual hours will be calculated based on the higher of either:
The usual hours will need to be calculated for each pay period, or part of a pay period, that falls within the claim period.
The furloughed hours for each employee are the usual hours less the actual hours worked, even if the actual hours differ to what was originally agreed.
Remember a copy of all records must be kept for six years, including:
For July, the scheme will continue to cover 80% of the employee’s pay up to a cap of £2,500 plus the Employer’s National Insurance and pension contributions for fully furloughed staff, with these amounts pro-rated for flexibly furloughed staff.
For August, the scheme will only cover 80% of the employee’s pay up to a cap of £2,500 for fully furloughed staff, with the amount pro-rated for flexibly furloughed staff.
For September, the scheme will cover 70% of wages up to a cap of £2,187.50 and, for October, the scheme will cover 60% of wages up to a cap of £1,875. However, for these months, the employee must continue to receive 80% of their pay up to a cap of £2,500. Again, these amounts would be pro-rated for flexibly furloughed staff.
The application process for the initial grant under the Self-Employment Income Support Scheme opened on 13th May 2020 and, at the end of 24th May, 2.3 million claims had been made for a total of £6.8 billion
The eligibility criteria for self-employed individuals, including members of partnerships, are that they:
Unlike the Job Retention Scheme, the self-employed individual can continue to work over the period covered by the grant.
For those eligible, the initial taxable grant equated to 80% of the average monthly trading profits and this has or will be paid out in a single instalment covering the profit for three months capped at £7,500 in total.
Applications for the initial grant will close on 13th July 2020.
The Chancellor, Rishi Sunak, has confirmed that there will be a second and final grant under this scheme equating to 70% of the average monthly trading profits. Again, this will be paid out as in a single instalment covering the profit for three months capped at £6,570 in total.
The eligibility criteria will remain the same and the individual will need to confirm that their business has been adversely affected by COVID-19 when applying for the second grant.
However, it is not a prerequisite to have claimed the initial grant for the individual to be eligible for the second grant.
Applications for the second grant will open in August 2020 and further information on the process will be published by HMRC on 12th June 2020.
Whilst this second grant will provide a vital lifeline to millions, it is frustrating that those groups that have fallen through the cracks remain on the outside.
The individual who started their self-employment after the 2018-19 tax year, the freelancer working through their limited company and many small business owners are left neglected other than, potentially, access to Universal Credit.
Given that is over two months until the application process for the second grant to open, it is mystifying as to why the Self-Assessment tax return for the 2019-20 tax year cannot be used as the eligibility base where filed.
As well as those who started trading in the 2019-20 tax year, this would also extend the level of support two other groups. Those whose self-employment income has declined to below the £50,000 average threshold in the year and those who started their self-employment part way through the 2018-19 tax year.
For the freelancer working through their limited company, the position is particularly galling.
On the one hand, in response to the House of Lords Economic Affairs Committee damning report into the upcoming IR35 reforms, Jesse Norman, the Financial Secretary to the Treasury, has opined the government view has not changed. In essence, where a freelancer is working like an employee they should be taxed broadly as an employee.
On the other hand, at a time where agility and flexibility will be cornerstones to rebuild the economy, the freelancer is not getting the access to the same support as an employee.
For the small business owner whose remuneration is driven primarily through dividends, there is a perception that this is a tax avoidance strategy. Whilst there was an element of truth to this under the old tax credit regime, this changed from 6th April 2016.
Since then, once the Corporation Tax that the company must pay to generate a dividend is taken into account, the difference to the overall tax basket between a salary or a dividend is marginal.
The primary reason for a dividend-driven remuneration strategy is to reduce the monthly cash flow burden on a business, instead opting for a payment out of the company profit once this has crystallised.
The Treasury has reiterated their position that it would be impossible to design a scheme that distinguished the small business owner from those who earn dividend income through shares.
Rishi Sunak has written on Twitter “I don’t think it would be right to be giving huge grants to those with investment portfolios.”
However, the reality of the landscape for many small business owners is that they are being driven into debt rather than getting the same support as their employees on furlough.
At a time where the country is on an employment precipice, it would seem a better approach to support small business owners rather than focus on the collateral impact of a relatively small cohort of investors.