Over recent weeks the Chancellor, Rishi Sunak has set out a number of financial support packages to assist employers, employees and the self-employed during these unprecedented times.
Many of these packages, including the Self Employed Income Support Scheme and the Coronavirus Job Retention Scheme, will be a lifeline to employers and individuals alike.
However, these support packages currently fail to reach certain hard working individuals and entrepreneurs. One such group are the self-employed who operate through the well-established route of a limited company and are remunerated through a mix of salary and dividend.
These individuals don’t qualify for the Self-employed Income Support Scheme. However, it has been confirmed that a director/shareholder can be furloughed through the Job Retention Scheme, BUT whilst furloughed they cannot do any work which makes money for, or provides services to the company, apart from undertaking their statutory duties (e.g. filing accounts).
In addition, dividends don’t qualify for the furlough, so the only benefit would be 80% of the monthly salary (i.e. 80% x £719 = £575.20 in a lot of cases).
As such, these individuals may need to look to the welfare system (i.e. Universal Credit etc.) for support and ensure that they are engaging with landlords and banks to seek rent and mortgage repayment holidays
However, whilst penning this note a further concession has just been announced for IR35 contractors working for public sector organisations through personal service companies who are unable to carry on working due the Covid-19 pandemic.
They will now receive 80% of their ongoing contract value, capped at £2,500.
A short summary of the furlough process is effectively as follows:
• You need to identify the employees that you will request to furlough and depending on their contract, seek their agreement to it.
• The government will fund 80% of their gross pay (capped at £2,500), plus employer NI and statutory pension obligations in due course.
• The calculations of gross pay will normally be based on their salary as of 28 February 2020.
• A company may elect to fund the additional 20% themselves, but there is no requirement.
• An employee must be furloughed for a minimum of three weeks, which can be extended at the end of that period.
• The pay will be processed through payroll as normal and the company will pay the employee. Where only 80% is to be paid, it is the 80% that is processed as the gross pay.
• HMRC are creating a new online portal, which they expect to be available by the end of April 2020, through which details of furloughed employees must be reported and claims made.
• You will need to calculate the amount you are claiming. Companies will only be able to submit one claim every three weeks.
• HMRC will retain the right to retrospectively audit all aspects of your claim.