Coronavirus: New help for individuals and businesses

20th March 2020

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 today are as follows:

Job Retention Scheme

  • 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 (see illustration below).
  • The grants service will initially last for three months. There is no limit on the amounts the government will provide to support jobs. Sunak appealed to employers to keep their workers on and use the grants, rather than laying them off.
  • It is available to employees on the payroll at 29 February 2020.
  • The employer will pay the worker through payroll, using the RTI system, as required by the employment contract. This contract may be renegotiated, but that is a matter for employment law. So the RTI system reporting of payroll will continue as normal.

To access the scheme, employers will need to:

  • designate affected employees as furloughed (laid off) 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.

HMRC published further guidance on the scheme on 26 March 2020,

Payroll software providers will also have to update their packages so that businesses can automatically add laid off workers to their payroll systems.

"For the first time in our history, the government is going to step in and pay people's wages... I am placing no limit on the funding for the scheme." Rishi Sunak

Illustration

ABC Ltd employs Mr A on an annual salary of £24,000, so £2,000 per month. Mr A has opted out of auto enrolment.

Each month, Mr A currently receives net pay of £1,665 which is after deducting PAYE of £191 and employees NIC of £144. On this salary, the employer pays employers' NIC of £174.

The available grant for the employer is the lower of

(a) 80% of (£2,000 + £174), and 

(b) £2,500

So a grant of £1,739.

The cash required by ABC Ltd to furlough based on maintaining the existing salary is £435 per month. It is a matter for employment law whether the employer is required to pay this top up. Discussions with employees may have agreed that the employee has agreed to a different arrangement during their furlough.

If Mr A had not opted out of auto enrolment, ABC Ltd would also be making pension contributions on his behalf. If so, the available grant is based on 80% of (gross salary + Employers' NIC + employers pension contributions paid), subject to the monthly cap of £2,500.

Implications of the scheme

The full details of the scheme have yet to emerge, and there will undoubtedly be teething problems when a plan such as this is put into action in such a short timescale. We can expect to see the scheme in operation before April, with grants backdated to 1 March 2020.

Perversely, the design of the initiative could result in employers actually laying off staff to focus the work on a smaller number of employees, and furloughing the rest rather than sharing work. At least those furloughed would be on 80% of what they could have been earning, though obviously not 100% like those still working. There is nothing to stop an employer voluntarily funding the laid off worker the difference between the 80% and 100% should they wish to do so.

It is also not yet clear how HMRC will know that a worker has been furloughed and not still actually working. What checks will be put in place to validate the status of a worker?

Also requiring clarification will be the position of those working through their own personal service companies (PSCs). Are they in the same position as other workers who face having no work, because as PSC directors they haven't been laid off? Or, could we see some PSC directors claiming that they are in fact employees of the engager and ignoring their PSC in order to claim 80% of their money?

In anticipation of the IR35 off-payroll rules being rolled out to the private sector from April 2020, some PSC owners will already have accepted employment. And even though the off-payroll rules have now been delayed for twelve months, the PSC owner - now an employee - could be relieved that they made the switch. 

Something else to watch will be where a director/shareholder takes a low salary which is topped up by dividends. Only the salary element is covered.

Additional measures announced today:

  • No interest on business interruption loans for the first twelve months, rather than the 6 months previously announced in the Budget. Loans will be available from next Monday
  • Deferring the next quarter's VAT payment - No business will pay VAT from now to mid June. This is automatic. You'll have until 31 March 2021 to repay those bills.
  • Universal Credit and Working Tax Credit basic element enhanced for the next twelve months - increasing the Universal Credit standard allowance, for the next 12 months, by £1,000 a year. and increasing the Working Tax Credit basic element by the same amount.
  • Self employed can now access Universal Credit with no floor limit - that means self-employed people can now access, in full, Universal Credit at a rate equivalent to Statutory Sick Pay for employees.
  • For the self-employed, the next self assessment payment due 31 July 2020 is deferred until January 2021. However, this could mean massive tax bills next January, so time to pay measures will be needed. Could this see a move towards monthly payments of income tax from 2021? Also, as profits may be impacted to 5 April 2021, payments on account in January 2021 could be reduced.
  • For renters, an extra £1bn of support by increasing the generosity of housing benefit and Universal Credit, so that the Local Housing Allowance will cover at least 30% of market rents in an area.

Further guidance for employers is available here.

What about the self employed?

Whilst help with such matters as tax and VAT payment deferments are helpful, the package announced by the Chancellor does not do much for the self employed.

They can gain access to the equivalent of statutory sick pay, which is currently £94.25 per week, but this does not appear to be much when an employee is guaranteed 80% of their salary under the Job Retention Scheme. So, for example, an employee on an annual salary of £25,000 could possibly receive £20,000, compared with a self-employed sole trader normally earning a similar amount now only able to access around £5,000.

Some useful links for the self employed can be found here:

With regards to Universal Credit, it is not yet clear what the position will be where a household has two earners, as the rules normally require household income to be assessed. This may become more flexible in due course..

It is possible that the Chancellor may offer more to the self employed in the coming days and weeks.

Social Distancing

The government has also announced further measures on social distancing, including asking the following businesses and venues to close: 

  • Food and drink venues for consumption on-site, such as restaurants and cafes.
  • Drinking establishments, including pubs, bars, nightclubs.
  • Entertainment venues, including cinemas, theatres, concert halls, and bingo halls.
  • Museums and galleries.
  • Spas, wellness centres and massage parlours.
  • Casinos and betting shops.
  • All indoor leisure and sports facilities, including gyms.

For further guidance, please check out our Coronavirus Knowledge Hub.

[Gary Mackley-Smith]

Share

Keep up to date

Key contacts

Related insights