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COVID-19 Emergency Measures (27.03.2020)

The long-awaited support scheme for the self-employed has been announced last night by the UK Government, as well as updates to how the Job Retention Scheme will work.

We are doing our utmost to stay abreast of recent government developments however please understand that there is a large volume of information to take in and we are still trying to understand the full impact of these measures.

Please continue to check back to our website as we will be providing regular updates when more information is released.

A brief summary of both measures are below, and then further information is available down below:

Job Retention Scheme

  • The government will cover 80% of the wages of workers that would have been otherwise made redundant as a result of COVID-19. You are paid the lower of 80% of gross wages + employers NI + basic pension contributions or £2,500.00.
  • Workers are not allowed to work for you whilst on “Furlough”, the new term for workers meeting the above criteria.
  • This scheme applies to directors, although there are potential caveats for sole director limited companies.
  • The scheme only applies to people on payroll before 28th February 2020, and is based on historic wages and not wage increases after 28th February 2020.
  • The system to reclaim these monies is still being developed and you will be subject to HMRC scrutiny into each claim to ensure it’s validity by being required to provide information regarding the claim via an online portal.

Assistance for self-employed

  • The Government will issue grants equal to 80% of average trading profits over the last 3 years, paid monthly for April – June 2020 capped at £2,500 per month.
  •  This applies to both sole traders and members of partnerships with average trading profits over the last 3 years of less than £50,000 or profits in 2018-19 of less than £50,000. The sole trade/partnership income must have equated for more than half of your total income in the above periods.
    If you only started to trade within 2016 – 2019 then HMRC will use the average of the available years which a tax return was submitted for.
  • You must have submitted a self-assessment tax return for 2018-19, have traded during 2019-20 and intend to continue trading in 2020-21 to be eligible.
  • The grant will be paid in one single instalment directly in to your bank account. Payments are expected to be made in June 2020.
  • The grant will be treated as taxable income and will also need to be included as income if you claim tax credits.
  • You cannot directly apply for this scheme, HMRC will contact those eligible and invite them to apply online once the scheme is fully available.

Assistance for Self-Employed

Under the Self-employment income support scheme, self-employed individuals (including members of partnerships) who have lost income due to COVID-19 will be able to claim a taxable grant worth 80% of their trading profits, up to a maximum of £2500 per month, for the next 3 months (April – June).

Full details of the scheme can be found here and we will summarise the points below: Claim a grant through the coronavirus (COVID-19) Self-employment Income Support Scheme

The scheme is open to self-employed individuals or members of partnerships who:

  • Submitted a self-assessment tax return for the tax year 2018-19
  • Traded in the tax year 2019-20
  • Are trading when they apply or would be were it not for COVID-19
  • Intend to continue to trade in the tax year 2020-21
  • Have lost trading/partnership profits due to COVID-19
  • Had trading profits in 2018-19 of less than £50,000 which made up more than half of their total income in the year, or, average trading profits during 2016/17, 2017/18 and 2018/19 of less than £50,000.

The taxable grant will be 80% of the average profits from the last three tax years and capped at a maximum of £2500 per month for 3 months. It will be paid in one installment but most likely not until June 2020.

You cannot apply for the scheme yet, HMRC will contact eligible individuals and invite them to apply online.

Unfortunately, if you do not meet the criteria for the scheme the current government advice is to explore the existing welfare systems such as universal credit.

Job Retention Scheme

The UK government announced additional information on the Job Retention Scheme which involves the government funding 80% of workers’ wages who would otherwise have been made redundant because of the coronavirus epidemic and allows you to retain them with government funding for at least 3 months.

The government has issued comprehensive guidance here: Claim for wage costs through the Coronavirus Job Retention Scheme

We have tried to summarise the government advice below to give an overview of the scheme as a whole however we would encourage all employers to read through the government press release.

Who is eligible?

Any UK organisation with employees and a payroll scheme can apply. Your payroll scheme must have been active before the 28th of February 2020 to claim.

What employee’s can this apply to?

Employees must have been on your PAYE payroll on 28 February 2020, and can be on any type of contract including zero-hour contracts. If they were hired past this date they are not eligible for furloughment.

When on furlough, an employee cannot undertake work for or on behalf of the organisation. This includes providing services or generating revenue. While on furlough, the employee’s wage will be subject to usual income tax and other deductions and must be filed through payroll still.

Although directors are not mentioned explicitly the understanding is that if they are an employee of the company then they are able to be furloughed, they must adhere to the rules, however, one of which is that they cannot undertake work for or on behalf of the organisation which would include managing the business, paying suppliers, filing VAT returns or company accounts etc.

You must discuss with your staff if you intend to furlough them and consider any changes that may bring to their employment contract, there must be an agreement from the staff member to furlough them. Equality and discrimination laws still apply to the furloughment process and who you choose to furlough.

You must write to your employee confirming their furloughment and keep a copy of this to be eligible for the grant.

What funding do I receive?

You will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included.

At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month. An employer can also choose to top up an employee’s salary beyond this but is not obliged to under this scheme.

Full time and part-time employees

The employee’s actual salary before tax as of the 28th February excluding bonuses and commissions should be used to calculate the 80%. 

Variably paid employees

If the employee has been employed for twelve months prior to the claim, you can claim for the higher of either:

  • the same month’s earning from the previous year
  • average monthly earnings from the 2019-20 tax year

If the employee has been employed for less than a year, you can claim an average of their monthly earnings since they started work.

Employers NI contributions and Pension Contributions

All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees

The grant will fund employers NI on the 80% wages but not on employers NI due on any “top up” of wages to the full 100% if you choose to pay it. The grant will fund pension contributions of 3% of income above the lower earning limit but not any higher contribtions you may have chosen to pay.

How do I make a claim?

Once the HMRC portal has been created and the scheme is live you will need to calculate the amount you are claiming and submit this to HMRC together with the number of employees being furloughed and the start and end dates of the claim period.

You can only submit one claim at least every 3 weeks, being the minimum length of time an employee can be furloughed for. Claims can be backdated to 1st March if applicable.

If HMRC agree and accept your claim they will pay the taxable grant to the UK bank account nominated in your application.

The grants received by a business under this scheme are to offset the corporation tax deductible wage costs. Therefore the grant must be taxed as income for corporation tax purposes to ensure there’s not a beneficial corporation tax position.

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