COVID-19 business support schemes broken down by accountants

Heswall-based Dufton Kellner has broken down two of the main government-backed initiatives - the Job Retention Scheme (JRS, also known as 'furloughing'), and the VAT Deferral Scheme - to help businesses and employees better understand what help is available.

The firm says that details about the scheme are avaible on the governement website, but are currently light on detail, so they are aiming to help 'fill in the blanks'.

Coronavirus Job Retention Scheme

1. How should companies claim their grants?

The Treasury and HM Revenue & Customs are still working this out and officials will put all confirmed details on the coronavirus business support website.

Importantly, the government has pledged to cover the employment costs of furloughed workers backdated to March 1.

This, they hope, will encourage companies to not lay off staff, but instead claim for the period since workers were told to go home.   

But note that the grant can only be claimed from the point at which a worker has been furloughed, not prior.  And to be 'furloughed' an employee must undertake no work for the company whatsoever from that point until they are reinstated - they cannot answer emails or telephone calls on behalf of the employer during the furlough period.

If you wish for an employee to continue working for you but at reduced hours, then this is not furloughing; you will not be eligible for a grant. 

You can either furlough an employee (they do no work and you claim back 80% of their wages up to £2,500 per month), keep them on full or negotiated reduced hours and pay, or make them redundant.  Really your options are between retaining or furloughing - there is no sense or financial benefit in making people redundant; indeed there will be an immediate cost and cash flow hit in doing so.

Companies with employees on zero hour contracts can use the monthly pay in February as a benchmark for each person’s pay when furloughed. If any employee did not work in that month, they should claim universal credit, the Treasury said.

Companies with staff who have to stay at home to look after young children are likely to be allowed to claim compensation if they furlough these workers because the government prefers this solution to people being made redundant.

2. Do companies have to pay 20 per cent of workers’ wages?

No. Having been written in such a hurry, the chancellor’s announcement last Friday was unclear on this point. Treasury officials were horrified at the weekend to find that many companies were still planning to lay off staff because they thought they would still have to pay 20 per cent of wages.

Instead, companies should pay 80 per cent of workers’ wages up to £2,500 a month once they have been furloughed, officials said, and they will retrospectively be able to claim for that amount. They should do this using normal payroll systems, deducting tax and national insurance under the pay as you earn (PAYE) system. 

If employers want to top up pay levels, they can, but will not be able to claim for more than 80 per cent of £3,125, equivalent to a gross salary of £2,500. 

The big outstanding issue is what happens to employers’ national insurance contributions, which amount to about 13.8 per cent of the majority of a worker’s salary. This has not been decided yet. 

Questioned about this, a Treasury spokesperson said: “We are working on getting some more detailed guidance out there as soon as possible on NICs.”

3. How can companies without cash flow pay their workers’ wages?

Officials expect companies to borrow in the short term to fund the wage package until the job retention scheme is running and companies can claim for the wages paid. 

The main source of funds for this will be the deferral of value added tax payments for the quarter until June 2020 which do not have to be paid until March 2021. 

Again, information on this on the government support website is sparse, but we understand that there will be no interest payable on these VAT deferrals. There will also be no late payment charges, so the £30bn tax deferral should be seen, officials said, as providing the funds to pay employees.

If tax deferrals and other measures announced by the chancellor such as business rate relief in some sectors are inadequate, the Treasury wants companies to borrow in the short term. Officials said that to do this they should look at the business interruption loans it launched on Monday for smaller companies, or the Bank of England’s commercial paper facility, which is suitable for the largest investment-grade companies.

4. Will the job retention scheme lead to fraud?

Officials have prioritised supporting companies more than preventing fraud. They say that companies will not be able to claim too much because they can cross-check the applications for grants against PAYE records for each company.

Companies will be required to make one claim for the entire workforce, record how many workers are covered and will need to keep records.

An alternative fraud will be much harder to catch, however. Peter Doyle, a former senior IMF economist, worried how HMRC would enforce the rules. “What is to stop a perfectly fine firm from declaring that it put half its workforce on furlough even as they work like mad and collect the grant?” he asked. 

Officials said it would be easy to monitor large companies and they hoped that unions and employees would blow the whistle on some others practising such fraud. They recognised that it would be harder to police in smaller companies, especially family businesses.

5. Is there any benefit for the self-employed?

Not in the job retention scheme because, according to the Treasury, it is impossible to know whether they have lost income, what a normal income for self-employed people is or whether self-employed people also have jobs.

The Treasury has promised to think again, but currently officials say the significant improvements in the generosity of universal credit will offer almost as much support as the job retention scheme. Having removed the minimum income floor, self-employed people will be able to get full universal credit.

Officials also pointed to the delay in self-assessment income tax payments from July to January 2021 and help with mortgages. They pledged that there would be further announcements in due course.

VAT Deferral Scheme

This is an automatic offer with no applications required. UK Registered businesses will not need to make VAT payments normally due on 7 April 2020, 7 May 2020 or 7 June 2020.

Taxpayers will be given until the end of the 2020-21 tax year to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the government as normal. 

No interest will be due on the deferred payments and no penalties will apply; payment made by the end of March 2021 will be deemed on time. 

Note two important points:

1. Businesses who normally pay by direct debit should cancel their direct debit with their bank; HMRC will not do this - you must take action otherwise the payment will be requested as usual. Please do so in sufficient time so that HMRC do not attempt to automatically collect on receipt of your VAT return.

2. You must continue to file your VAT return by the usual due date - it is only the payment that may be deferred; the return must still be filed on time otherwise penalties will apply.

Help for the self-employed?

The help so far announced for the self-employed falls a long way short of that provided to employees. We expect an announcement of additional help to be made available will be made by the end of this week, and will contact you again at that time.

Anyone requiring further assistance can contact Dufton Kellner via email: post@duftonkellner.co.uk