March 27, 2020
Edit 24th April – the team have now recorded a webinar regarding the schemes which you can view here.
It seems there is just no let up to the new coronavirus relief measures that are being announced by the Government.
Yesterday, the Chancellor announced the Self-Employment Income Support Scheme which is intended to shore up support for at least 95% of the UK’s 5 million self-employed workers. There are already some questions and concerns regarding the scheme, especially given that personal service companies who operate PAYE will not qualify for the scheme (though they will be able to access the Coronavirus (COVID-19) Job Retention Scheme announced last week).
The Government has also overnight published further details of the Job Retention Scheme. This clarifies many of the queries regarding how the scheme will work but there remain many unanswered questions.
Set out below is a summary of the guidance that has been issued in respect of both schemes. We will be raising questions (including how the rules may apply to loan outs) directly with HMRC’s Covid-19 team and will of course be analysing this further over the coming days.
Please do contact us if you would like to discuss how either of these schemes may apply to your organisation.
Job Retention Scheme
The new guidance regarding the Job Retention Scheme can be found here. The key points to be aware of are as follows:
- Employers will be able to claim 80% of an employee’s wage costs as at 28 February 2020 (up to a cap of £2,500 per month) plus the employer NICs on those wages and the minimum employer auto-enrolment pension contributions (i.e. 3% above the relevant lower earnings limit);
- Any payment to an employee under the scheme will be subject to PAYE and employee pension contribution deductions in the usual way;
- There is no requirement for the employer to top up to 100% pay. However, it will be necessary to obtain the employee’s agreement to the reduction of their pay to 80%;
- To be eligible, the worker must have been on the employer’s payroll by 28 February 2020;
- Employees already made redundant since 1 March 2020 can be rehired and put on furlough to benefit from the scheme (provided they were on the employer’s payroll by 28 February 2020);
- There is useful flexibility for employees whose pay varies. The employer can claim for the higher of (i) their same month’s earning from the previous year (i.e. earnings in March-May 2019); or (ii) their average monthly earnings in the 2019-20 tax year. For those who have been employed for less than a year, the employer can claim for their average monthly earnings since starting work. This could potentially be very useful for Film/TV productions with PAYE freelancers on short term contracts;
- Employees who are paid the minimum wage can be paid 80% of this during the period of furlough and the employer will not be in breach of the National Minimum Wage Regulations;
- Furlough leave must be taken in minimum blocks of three weeks to be eligible for funding. However, it would appear that employers are not prevented from rotating furlough leave amongst employees, provided each employee is off for a period of at least three weeks;
- Employees on furlough must not work at all for their employer, otherwise reimbursements will not be made. They can, however, undertake training and do volunteer work, provided they do not provide services to or make any money for their employer;
- Employees on sick leave or self-isolating cannot be furloughed, but can be furloughed afterwards; and
- If 20 or more employees are involved, collective consultation measures may need to be considered (although it is difficult to understand how this might work in practice).
Self Employment Income Support Scheme
The proposed measures for self-employed workers are broadly similar to those of the Job Retention Scheme and the formal guidance can be found here. This is expected to be expanded upon in the coming days.
In summary, the guidance confirms that self-employed people will be entitled to claim a grant of 80% of their monthly profits (not earnings) based on a calculation of their average monthly profits over their last 3 years’ of tax returns, up to a cap of £2,500 per month.
To access the scheme, the following criteria must apply:
- their annual trading profits must be less than £50,000 (either for the last year end or averaged over the last 3 years – 2016/17, 2017/18 and 2018/19). This will mean that the highest earning freelancers (including certain senior crew and talent on TV and Film productions) will not qualify;
- they must have been self-employed prior to 6 April 2019;
- the freelancer must have suffered loss of earnings as a result of Covid-19;
- over 50% of their earnings must have been from self-employed work. A freelancer who regularly moves between PAYE and self-employed engagements may therefore not qualify if more of their work has been PAYE.
The scheme will run from 1 March 2020 for 3 months which is the same timeframe as the Job Retention Scheme. However, payments under the scheme will not be made until the start of June and will be paid as a single lump sum. The company engaging the individual should not need to do anything – HMRC will identify and contact the eligible self-employed person directly and pay the grant straight into their bank accounts, following their completion of an online form.
Other key details to note include:
- the grant is taxable and will need to be declared on the individual’s self-assessment return for the applicable tax year (which, given that the payments relate to a period straddling two tax years, we expect to be 2019/2020 and 2020/2021);
- Unlike under the Job Retention Scheme, a freelancer receiving the grant can continue to work while the scheme is active;
- the scheme will still be available to those “late filers” who missed the tax return deadline (for the 2018/2019 tax year) earlier this year, provided they file their tax returns within the next 4 weeks (and meet the scheme’s other criteria); and
- as noted above, personal service companies (otherwise known as loan out companies) which operate PAYE will not qualify for the scheme but will be able to access the Job Retention Scheme. While this clarity is useful, it will mean that the amount of reimbursement is lower for some (as most loan out companies will pay a mixture of salary and dividends). There are also still some questions regarding loan out companies (see below).
When making the announcement, the Chancellor explained that it had been challenging to provide equivalent protection for self-employed workers given the differences in tax contributions between the employed and self-employed. He indicated that by providing these schemes, it will potentially no longer be fair in the future for individuals of different status to be taxed differently and this could be a strong indication of the future direction of travel in UK tax policy. Clearly this could be very significant for many of our clients once this crisis is over, particularly those within the Film and TV sector.
What don’t we know?
Given the complexity of the challenge, there are a number of questions that remain regarding both of the schemes. This is not surprising. The measures that have been announced would in ordinary times have taken months if not years of debate within Parliament.
While we already have a good idea of how the schemes will operate based on the information announced to date, there are some important questions that still need to be answered:
- On the face of it, the Job Retention Scheme appears to apply to workers who are paid via PAYE but there remain some within the Film and TV industries who are concerned as to how the rules will apply in practice (particularly in respect of those PAYE workers who have very short contracts or do daily work). Further clarity on this is crucial;
- Whilst loan out companies which operate PAYE can access the Job Retention Scheme, what about those that don’t? We assume they will be eligible under the Self-Employed Scheme but this could also benefit from clarification;
- If collective consultation might be relevant to furloughing, how will this actually work in practice? If it operated normally, presumably employers would have great difficulty furloughing staff as swiftly as they will need to;
- What is the position on holiday pay during furlough? Will it continue to accrue and can employers require workers to take their holiday during the furlough leave and just pay 80% pay for that period?
- Where workers have already been dismissed, can they be required to repay their redundancy payments and notice pay if they are re-hired and put into furlough?
We will try to seek as much clarity as we can on these questions in the coming days from all sources available to us but do contact us if you would like our initial thoughts.