On 20 March 2020 the Chancellor, Rishi Sunak, announced the introduction of the Coronavirus Job Retention Scheme. We have had many messages from small business owners wondering if this scheme applies to them and how they can claim from the fund. We are here to give you our current interpretation of the intended nature of the scheme, and will of course give you more accurate information when it becomes available from Central Government.
What is the Coronavirus Job Retention Scheme?
The Coronavirus Job Retention Scheme is a new fund of money being introduced into the economy to help employers fund the cost of furloughed workers. The Chancellor has committed to funding 80% of furloughed worker’s wages up to the cost of £2,500 per worker per month. These wages will be back dated to 1st March 2020 with the fund actually paying out to recipients before the end of April 2020.
The intention here is for employers to retain their workforce instead of making them unemployed during this period when they are unable to pay them.
Who is the scheme intended to help?
As far as we understand it, the intended recipients of this scheme are those employees who want to work, but cannot work as a result of the Covid-19 (Coronavirus) pandemic.
For example, on 20 March 2020 the Prime Minister announced the instant closure of restaurants. This means that restaurant owners have two options for their current staff:
- Retain their staff by paying them as furloughed workers (i.e. workers on a leave of absence)
- Make them all unemployed
The Government don’t want unemployment levels to increase, so in order to help businesses in this position retain their staff, they are offering to pay 80% of their salaries through this new Coronavirus Job Retention Scheme.
How do I make my employees furloughed workers?
The term “furlough” means to grant a leave of absence. Essentially retaining a worker’s employment status, but not requiring them to undertake any employment tasks. In order to correctly furlough an employee, you as the employer, need to follow these steps:
- Have a formal conversation with each employee explaining the current position.
- Put the conclusion of that conversation in writing to the employee stating that their employment status has been changed and they are now classified as a furloughed worker, and an appropriate time that you anticipate this status to continue, or the time frame under which you intend to review the situation.
- Whilst on furlough your employees must not do any work at all on behalf of the company. This is a very important part of their new status. Being furloughed means a paid leave of absence, which includes their duties under their employment contract.
For more detailed information on how you properly undertake the process of furloughing an employee please do speak to an employment law specialist like our friend in business, Jemma Fairclough-Haynes of Orchard Employment Law, or alternatively see her article at https://orchardemploymentlaw.wordpress.com/2020/03/25/furlough-explained/
I am a company director and employee, can I claim the 80%?
It would appear that as a limited company director you can claim from the scheme so long as you meet the furloughed criteria. The amount you can reclaim will be purely based on your salary income, not your dividend income. You can read more about this at Covid-19 Guide For Limited Company Directors
How to claim from the scheme?
The claim process for this scheme has not yet been formalised and published by HMRC, although the Chancellor did say that claims would be paid out before the end of April 2020, which implies that the claims process should be released in the coming weeks.
The current lack of a formal claims process means that employers are being asked to self-fund their employee’s wages during this time, and then make a claim to reimburse their costs when the scheme is up and running. The official guidance is that if you can’t currently fund the payments, then you should consider applying for a 12 month interest free loan from the British Business Bank at https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils/ , also known as the Coronavirus Business Interruption Loan Scheme.
We will be updating this information as soon as we can after it is released, but in the meantime if you do need accounting help then please don’t hesitate to contact us on firstname.lastname@example.org or 01634 540340.