The Coronavirus Job Retention furlough scheme was announced by Chancellor Rishi Sunak on 20 March 2020, just before lockdown began. It was devised and implemented at great speed, with the portal being opened for claims just a month later, on 20 April.
With Blick Rothenberg having helped hundreds of clients submit furlough scheme claims over the last six months, I thought that National Payroll Week would be a good point to share a few reflections.
First, the Government – and HM Revenue & Customs (HMRC) – are to be congratulated in designing a scheme from scratch which, on the whole, has worked smoothly and has delivered significant sums – over £30bn – to date to help support jobs. No system is going to be perfect, but in this case, we should acknowledge that a good job was done in very challenging circumstances.
The issues in the early days were around working out who qualified – and understanding why some businesses were not able to receive support. The biggest omission was personal service companies, where an individual who is, in substance, self-employed provides their services through their own limited company. In most cases, the individual would draw only a small salary, with the rest of their income being in the form of dividends, which saves National Insurance Contributions in most cases. There was a clear policy decision that only the (small) salary would qualify, even though a large part of the income was in the form of dividends. At Blick Rothenberg, we did put forward a constructive suggestion for how these individuals could receive more support, but the Treasury was not willing to go beyond the measures already in place.
Others who fell through the cracks included directors with an annual payroll who could make no claim unless there had been a PAYE submission during 2019/20, which would not be the case for:
- directors with an annual payroll who could make no claim unless there had been a PAYE submission during 2019/20, which would not be the case for anyone whose salary was typically paid in March
- any companies without a UK bank account – a problem for some overseas companies
- and any employees who happened to start their new job towards the end of the 2019/20 tax year and so were not included in a PAYE submission before 19 March 2020.
As we started to process claims for clients, numerous minor queries arose. For example, if there was a Bank Holiday in the month, were employees given a day off in lieu? If not, then they were entitled to be paid their full salary for that day (under employment law and the Working Time rules), so the amount claimed under the furlough scheme had to be topped-up.
There were also some odd quirks, due to HMRC’s insistence on performing calculations on a calendar day basis, even if salary was calculated based on 260 working days per year. In most cases, this resulted in small differences between the amount paid to employees and the amount reclaimed and, while it created additional work, it was not a fundamental issue.
A bigger issue – and one that may cause problems in the future – was the strict rule that, for periods prior to 30 June, employees on furlough were not permitted to do any work at all for their employer. This caused some practical issues (for example, strictly speaking an employee could not even answer an email to let someone know where a particular piece of information was held) but, in our experience, most employers understood the rules and did their best to ensure that their employees complied. However, evidence from HMRC’s hotline and from academic research suggests that, in some cases, employers have insisted that their employees continue to do at least some work. This is likely to result in HMRC asking for repayment of grants made, as there is a clear breach of the rules. We hope that HMRC will be more sympathetic where innocent errors have been made, such as small overpayments or miscalculations. If a company does find that an error has been made, any overpayment should be declared to HMRC and repaid within 90 days.
Overall, the scheme has achieved its main aim, of providing significant support to help preserve jobs during the lockdown phase of COVID-19. However, the scheme will end on 31 October, and it remains to be seen whether all of those jobs will return to normal. Sadly, the signs are that a number of redundancies are inevitable.