The government has laid out unprecedented new measures to protect individuals and employments during the Coronavirus pandemic. Chancellor Rishi Sunak has announced historic, temporary measures to maintain jobs and the UK economy on top of announcements previously made.
The key measures announced are as follows:
- New Coronavirus Job retention scheme for employers (businesses and charities), so that 80% of salaries are covered via HMRC grants with effect from 1 March 2020 for individual salaries of up to £2,500 per month
- The grants service will initially last for three months. There is no limit on the amounts the government will provide to support jobs. The Chancellor appealed to employers to keep their workers on and use the grants, rather than laying them off.
When and how will this be available?
(We strongly advise employers to take advice from their usual legal advisor prior to taking any action.)
To access the scheme, employers will need to:
- Designate affected employees as furloughed workers, and notify 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
- HMRC will set out further details on the information required.
HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. The department is setting up a new system for reimbursement, as existing systems are not set up to facilitate payments to employers.
Implications of the scheme
The full details of the scheme will not become available until passed into law and there will be teething problems when a plan of this scale is implemented at short notice. While we expect to see the scheme in operation by April, with backdated to 1 March 2020, a lot of questions remain unanswered:
- How do employers calculate normal pay for hourly paid workers who are furloughed?
- Can company directors be furloughed?
- If workers have recently been made leavers can this be reversed, and will those employers still be entitled to the retention grant?
- What data is required to be submitted to HMRC?
- Will Payroll software require updating?
- What are the mechanics for making the claim?
When legislation is published, and we have more clarity we will update you and work with you to figure out your business’s best way forward.
What is meant by “Workers Wages Costs”?
While there is no legislation to check, our interpretation is that it is the value of salary before tax is deducted plus the value of employers national insurance and pension contributions.
At present, employers pay 13.8% national insurance on top of wages that exceed £719 a month and if there is a basic workplace pension scheme in place; a further 3% on earnings that fall between £512 and £4,167 a month.
Therefore, an employee with monthly earnings of £2,500 has a total wages costs of £2,805
Examples are as follows:
|Hourly rate (£)||Hours per week||Pay per month (£)||ERs
|Monthly wage costs
|80% Retention Grant (£)||Balance to fund if paying furloughed staff 100% (£)|
How will HMRC police the scheme?
A condition of the scheme is that a worker who has been furloughed cannot work for the employer during the period they have been furloughed. This opens up other questions including:
- How will the government ensure that the furloughed are not working?
- How will the government test that the wage paid to a furloughed worker is a true reflection of their usual pay?
- Will there be a change in the information reported to HMRC?
As always as soon as further information is known we will update our guidance.
Cashflow advice/Requesting Time to Pay:
Businesses should keep hold of as much cash for as long as they as they can. While normal payroll operations continue, the delay in payment of PAYE and National Insurance to HMRC is a logical step to give your business an immediate cash benefit. However, you must speak to HMRC before withholding payment in order to agree terms
In order to access this facility, you must speak to HMRC first and be prepared to be on hold for a period of time due to demand;
Call HMRC on 0800 015 9559 and ask about Time to Pay Scheme
You will need your:
- Business name and business address
- PAYE Reference number*
- Your13 digit Accounts Office Reference number (sometimes called a collection reference)*
- The amount you want to delay
The payroll reports that Mitchell Charlesworth Payroll Department send to our clients include a report entitled P32 Substitute. The pdf is called PAP32TOT. This report will contain the relevant references and the amount to be paid to HMRC.