On 26 March 2020, Chancellor of the Exchequer Rishi Sunak announced a radical package to help the self-employed whose businesses have lost income due to COVID-19 (coronavirus). The only detail currently available is what is contained in the Chancellor's statement, as well as what can be gleaned from comments made to the press immediately afterwards.
In this article, we outline further details of the Job Retention Scheme made available today, as well as details of new guidance published by the Home Office on immigration provisions for individuals affected by issues associated with coronavirus.
The Income Support Scheme
The Income Support Scheme for the self-employed is intended to be analogous to the Job Retention Scheme, which we reported on in the March edition of Law at Work. The key points of the package are as follows:
- The scheme is intended to be 'analogous' to the Job Retention Scheme.
- Taxable grants worth up to 80% of the business' usual profits are available for the self-employed, up to £2,500 a month. Profits will be calculated using the average profits over the past 3 years (figures submitted to the HMRC will be used for this purpose) or a lesser period where the business has not been trading for 3 years.
- In order to be eligible, a person needs to derive the majority of their income from self-employment.
- The scheme is open to anyone with a trading profit of less than £50,000 in 2018-2019 (or on average £50,000 based on the past 3 years).
- The scheme will offer help for a period of 3 months, but this may be extended.
- Funds will not be available until early June and will be backdated to 1 March 2020.
- Those who did not file a tax return for 31 January 2020 will now be able to do so in the next 4 weeks, so that more people can take advantage of the scheme.
- It would appear that the recently self-employed (who do not have a full year's trading accounts) cannot be helped by the scheme. The Government has said that businesses will need a full trading year.
Although the Government has indicated that it cannot help those who are not already on HMRC's radar as self-employed (effectively those with less than a full trading year), it is probably worth such businesses applying to the scheme in any event, as government policy is changing from day to day. We will provide a further update when more details of the scheme become available.
Further details of the Job Retention Scheme published in guidance
On 27 March 2020, the Government published guidance setting out more detail of how the Job Retention Scheme announced on 20 March 2020 (see this Law at Work article) will work.
Currently, there is still no underlying legislation to support this scheme, and we are not aware whether the Government intends to legislate shortly or simply to start administering the scheme. The scheme will run for a 3 month period, which may be extended, and claims can be backdated to 1 March. The Government aims to have the scheme up and running by the end of April.
The following points are clear:
How does the wage subsidy work?
- Employers will be able to claim employer NICs plus minimum auto-enrolment employer pension contributions (calculated on a specified basis) on top of the £2,500 wage subsidy. This will make a significant difference to the financial position of many employers contemplating using furlough.
- For the purposes of calculating 80% of a person's salary, the actual salary before notional tax has been deducted should be used.
- Fees, commission and bonus are not employment costs that will be covered by the scheme (and should not be used in the salary calculation).
- If paying a person 80% of their salary takes them below the national minimum wage (NMW), the employer does not have to top this up to meet the NMW. The NMW does not apply, so long as the person is not actually doing any work for their employer (but will apply if any training, including minimal online training, is undertaken).
- Wages paid through the subsidy will be subject to tax and employee's NICs as usual.
Who is on PAYE as at 28 February 2020?
- The scheme is only available to those who operated a PAYE payroll scheme on or before 28 February 2020 and who have a UK bank account.
- The scheme is stated to apply to "UK employers", including those in the private, public and charitable sector. There is no further detail about whether foreign companies not incorporated in the UK but with a UK presence will be able to apply, but on the face of it, this seems unlikely. As government policy is changing so quickly and the policy intention is to protect UK jobs, it may be worth such employers applying if they have a UK bank account and operate a UK payroll.
- Employees who have been on payroll since 28 February 2020 will be covered – so those recruited after that date fall outside the scheme – and it does not matter what type of contract you are on: full-time, part-time, zero hours or agency worker; the key thing is that you must be on an employer's payroll.
Employees must not be working
- It has been confirmed that in order to be eligible for the scheme, employees must not be working. So those on reduced hours are not covered by the scheme. This could give rise to a 'two-tier' workforce where those working reduced hours are financially worse off than those who have been furloughed.
- Employees who have been made redundant (presumably due to coronavirus) since 28 February can be furloughed if they are rehired. No mention is made about whether their continuity will be preserved, but our best guess is that legislation will provide for continuity to be preserved in these circumstances.
Minimum period of furlough
- There is a minimum length of time an employee may be furloughed for, which is 3 weeks.
- Employers can only submit one claim to the online portal every 3 weeks.
- There is no mention in the guidance of whether a person may be furloughed more than once. It would appear possible to do this, provided the minimum length of the furlough is observed.
- The Government has presumably imposed the 3 week rule to better enable it to administer the scheme. It is not yet clear whether there will be a 'claw-back' of the subsidy if this rule is not strictly observed.
Employees with variable pay
- For employees whose pay varies, in the case of employees who have been employed for at least a year, the employer will be able to claim for the higher of the employee's earnings in the same month the previous year or the employee's average monthly earnings in the 2019/20 tax year.
- For employees who have been employed for less than a year, the employer will be able to claim for an average of the employee's monthly earnings since he or she started work.
Employees off sick, shielding or volunteering
- If employees are off sick or self-isolating, they should get SSP and may be furloughed after their period of sick leave or self-isolation has ended.
- Employees who are shielding in line with public health guidance may be furloughed.
- A furloughed worker can take part in volunteer work, provided such work does not provide revenue for the employer's organisation.
Employees on maternity leave
- A person on maternity leave in receipt of statutory maternity pay will continue to receive SMP.
- The wage subsidy is available to cover the cost of enhanced maternity pay – which seems surprising given that a person on maternity leave has not been furloughed – or other enhanced family-related leave.
What employers will need
In order to apply through the online portal, an employer will need the following details:
- ePAYE reference number
- number of employees being furloughed
- claim period (start and end)
- amount claimed
- bank account and sort code
- contact name, and
- phone number.
HMRC has indicated that it will "retain the right to retrospectively audit all aspects of your claim".
Clearly, this guidance is hugely helpful at this time but will also leave many questions unanswered, as employers have not navigated this territory before. The potential pitfalls could not be greater, so please seek advice from a member of our team if you are planning to use furlough or if you would like advice on any employment, pensions or immigration issue raised by coronavirus.
Immigration in the time of coronavirus
On 24 March 2020, the Home Office published new guidance on immigration provisions for individuals affected by issues associated with coronavirus. Our article explores the current position including the latest Home Office guidance and the key questions that UK businesses and visa holders may have. We also consider some of the areas where there is less certainty.