Updated 03 December 2020
The Coronavirus Job Retention Scheme, or furlough scheme, was originally set to end on 31 October 2020 (but has been extended - see below). Chancellor Rishi Sunak has announced its replacement – the Job Support Scheme – and various other measures to help small businesses through the pandemic. Article by Nick Green.
N.B. The following article was written before the second national lockdown was announced on 31 October, which has resulted in the extension of the furlough scheme. The dates given before for the Job Support Scheme are therefore no longer accurate - however, the other details of the scheme may remain the same or similar when the furlough scheme does eventually end.
Employers who have been furloughing their staff during lockdown will no longer be able to draw upon the Coronavirus Job Retention Scheme to pay 80% of their wages, after 31 October 2020. However, as of 1 November the Chancellor Rishi Sunak is putting a substitute scheme in place. What does this offer, who is eligible, and how many employees will be able to keep their jobs and preserve their incomes as a result? Here are the details known so far.
Under the government’s new Job Support Scheme, furloughed employees will have to return to work for at least a fifth (20%) of their normal hours. If they do this, they are entitled to at least 77% of their normal wage – but paying this wage must be shared between the government and the employer.
Here’s how that works. The employer will pay the employee for all the hours they work. For the remaining hours that they do not work (i.e. compared to what they would normally work), the employer pays a third of the wages that would be due, and the government also pays a third.
See this example:
Sandra normally works full-time for a wage of £2,000 per month. Her employer furloughed her at the start of lockdown, but is now able to take her back working a third of her hours.
Under the Job Support Scheme, her employer pays for all her hours worked, totalling £666,67 per month. This leaves a remainder of £1,333.33 to be paid.
The government pays 62% of this and Sandra's employer pays 5%.
Sandra’s total income for the month is therefore £1555.55. This works out as around 77% of her full-time wage.
The amount of the government contribution will be capped at £1,541.75 per month.
When compared to the furlough programme, the Job Support Scheme provides a comparable income for those staff that can make use of it – at least 77% versus 80% on the furlough scheme, with the potential to earn more if the employee can work more than 20% of their hours. However, there are important caveats.
Staff must be able to work at least 20% of their normal hours and the employer must be able to pay them for these. Where this isn’t possible, the employee will in most cases be made redundant. Furthermore, this scheme offers a much worse deal for employers than the furlough scheme did. Under the furlough scheme, employers could choose to pay their staff nothing at all (since 80% of their wage was paid by the government), and at most only had to pay a fifth of their normal wage to give their employees a full income.
Now, an employer using the Job Support Scheme must pay at least 20% (for work done) but also another 5% for hours not worked, with the rest of the 77% picked up by the taxpayer. For many small and medium-sized businesses, this may be a big ask. Many employers will have to face a painful choice between holding on to good employees, and having to let them go in order to protect their business.
All small and medium-sized businesses will be able to use the scheme. Some large businesses will also be able to, but must first prove that their turnover has been adversely affected by the pandemic. There is no requirement that a business must have previously used the furlough scheme – any eligible business can apply.
Employers must have a UK bank account and use UK PAYE schemes. Any larger companies that meet the financial criteria for the scheme will not be able to pay dividends while using it.
The scheme will run for six months, starting 1 November, so will close on 30 April 2021. At this time no-one knows if there will be a replacement, or if one will still be needed.
You can start to claim from the Job Support Schemefrom 1 December 2020, although the payments can apply from 1 November. This is because payments are made in arrears - you must first pay your employee and then report that payment to HMRC via a Real Time Information (RTI) tax return. You can then claim the grant from the government via the Gov.uk website, on a month-by-month basis.
The Job Retention Bonus is a one-off payment of £1,000 to employers, for every employee that they bring back from furlough and retain in continuous employment until at least 31 January 2021. Such employees will have to earn a minimum of £520 a month on average between 1 November 2020 and 31 January 2021. Subject to these conditions, employers using the Job Support Scheme can still claim the Job Retention Bonus.
Any employee who has been on the payroll on or before 23 September can take part in the Job Support Scheme. The employee must work at least a third (33%) of their usual hours for the first three months of the scheme. After three months the Government will review this threshold (at which point it may either increase or decrease).
Flexible working is possible on the Job Support Scheme. Each working arrangement must cover a period of at least seven days - so for example, an employee could work 20% of their hours for the first seven days, then 50% of their hours for the next seven days, then 33% for the next seven (and so forth), depending on the demands of the business. Employees can also jump on and off the scheme, so that sometimes they may be working 100% of their hours (with the employer paying all their wages and the government paying nothing), while at other times their wages are paid under the scheme.
The government has made clear that it expects businesses to use the scheme only if they cannot afford to pay their employees their usual wage. Therefore, paying more to your employee than the maximum required by the scheme is frowned upon, if not explicitly forbidden. It is therefore inadvisable to top up your employee's wages above the amount required, while using the Job Support Scheme.
No. The Job Support Scheme is designed to preserve jobs, so you cannot make an employee redundant (or put them on notice of redundancy) while using the scheme to pay part of their wages. You will have to take that employee off the scheme first. You can, however, use the scheme for some employees while making other employees redundant.
You'll need to notify your employees that you intend to put them on the Job Support Scheme, and agree any new working arrangements with them in writing. HMRC may request to see details of this arrangement, so keep copies securely for easy retrieval. HMRC will also check your eligibility to use the scheme, and there will be penalties for misuse.
The Chancellor also announced some additional measures to help wean businesses off government support and help them return to normality.
Businesses that took out government loans (e.g. the Bounce Back Loan Scheme (BBLS) or the Coronavirus Business Interruption Loan Scheme) can now choose to pay these loans back over 10 years if they wish, rather than the standard six years. This will decrease their monthly repayments, though of course will increase the overall amount repaid.
Businesses can also move to interest-only payments for a period, or suspend payments altogether for up to six months. However, the money will still have to be repaid eventually, so these options should be considered a last resort. The Chancellor has said that choosing to do this will not affect a business’s credit rating. He is calling the scheme ‘Pay as you Grow’.
Some businesses have been allowed to delay paying their VAT bills during the crisis. This bill was originally to be settled as a lump sum payment, but can now be split into 11 monthly payments to help protect cash flow. Around half a million businesses should be able to make use of this.
During the pandemic, businesses in the hospitality and tourism sectors had their VAT reduced from 20% to 5% to help cushion the hit to their finances. This was due to end in January, but the Chancellor has now extended it to 31 March 2021.
Individuals who owe up to £30,000 in income tax for the current tax year will now be able to pay this gradually over the course of 12 months, with a new deadline of January 2022. This measure may particularly benefit self-employed people, such as contractors and sole traders, and anyone who has to complete a self-assessment tax return. You will need to telephone HMRC to register for this repayment plan.
If your business is still struggling financially due to the pandemic, a good accountant should be able to find efficiencies to help you remain solvent without having to make too many painful decisions.
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