Business updates on Covid-19
As your business advisors, we are experiencing a continuous flow of information from the Government. With guidance for employers, employees and businesses on how you should respond to the impact of Covid-19, we have summarised some of the key points to help you and your business. We will continue to update this as more information flows out from government.
Coronavirus Job Retention Scheme
The major issue right now for businesses who remain open, is dealing with staffing. Many have sought to take advantage of the furlough provisions rather than go through the redundancy process, and this makes a lot of sense.
Many businesses are paying 80% of salary, and a few are topping this up to employee salaries at their current level. Our understanding is that the 80% grant is based on the total cost to the employer, including employers NIC and pension, not 80% of the gross pay of the employee. This means that the employee may receive less than 80% of their net pay; which might be worth knowing in tailoring expectations. In managing the expectations of employees who will be receiving a lower than normal salary, it is worth gently explaining that in being forced to stay home, they will not be incurring costs such as travel to work, lunches, gym memberships etc as they effectively have fewer places to dispose of their disposable income! If they are in genuine financial hardship, they may be eligible for further government assistance such as a £500m council tax hardship fund or extra support from benefits such as Universal credit.
There are also potentially some staff problems in selecting those who are furloughed and those who are not. One legal adviser has indicated that you should select personnel for furloughing carefully, and in the same manner as you would redundancy, to ensure you do not breach employment legislation for discrimination.
If you are in a position to keep your business running with fewer employees, then further staff problems could occur if some employees resent their colleagues receiving 80% of their pay on furlough for an extended 'holiday ', whilst they are having to work. One idea to deal with this, is to plan furloughs to be applied in one week for one employee, who a week later is then taken off furlough and put on pay, and their colleague put on furlough. Work is therefore being shared by playing a game of Hokey Cokey with the furlough. The rules do not currently prevent this, but they are still being worked out. Watch this space.
The mechanism for furloughing is still a work in progress. It is not anticipated that the government will be in a position to make the grants much before the end of April. There is a proposed portal onto which the employer will designate the furloughed employees and their details, which will then be used for grant purposes. We are hoping that the process and what is and isn’t allowed for furloughing, is made clear in the following days.
Another problem with furlough which is arising is the one of holiday pay. It is conceivable that companies could have staff on furlough for up to three months, and then be faced with a full year’s holiday taken over the remaining nine months. Companies run a risk of being short staffed in the future. One way round this is to discuss the situation with the staff who are being offered furlough, and try to resolve the holiday situation at that point. Given that furlough is a change in their conditions of employment, you need their agreement for any change to their contract. For example, it may be agreed that their holiday entitlement is reduced, or the remainder of the year's holiday may be combined with the following year, so that the effect is diluted. Whatever is agreed with the employee must meet existing legislation, and you must get their agreement in writing.
VAT Payment Deferral Plan
The Government is providing support for businesses through deferring VAT and Income Tax payments. VAT payments can be deferred for three months from 20 March 2020 until 30 June 2020, all businesses are eligible, and this is an automatic offer, you do not need to apply for it.
VAT refunds and reclaims will be paid by the government as normal.
Income tax payment deferral
If you’re self-employed, any payment you have due in July 2020 under the self-assessment system can be deferred until January 2021.
Time to pay
Any firms or individuals who are in temporary financial distress as a result of Covid-19, and who have outstanding tax liabilities may apply for ‘Time to Pay’ which should help ease cash flow issues. You need to agree ‘Time to Pay’ arrangements with HMRC for PAYE, Corporation Tax, NI and any other tax liabilities, this is not an automatic offer.
If you are finding difficulty in submitting accounts to companies house before your filing deadline as a result of the effects of Covid-19, you can apply for a time extension here. You must apply before you reach your filing deadline.