UPDATE FOR FURLOUGHING WORKERS AND SOLE TRADER DIRECTORS
ll newsletters are now available on the AS Taxation website: www.astaxation.co.uk
The government posted an update on Tuesday to the furloughed workers rules and also confirmed the position of “sole trade” directors who run their business through a limited company. There is work to do to claim the government grant detailed below and AS Taxation Ltd is available to do this on behalf of our clients. As there will be work involved we will have to charge a fee for doing this we will try and keep our fees to a minimum. If you ask us to write your furlough letters and email these to your employees there will be a fee of £30 plus VAT per letter. If you want us to deal with claiming the furloughed payments the fee will vary according to each employer but I am happy to provide a quote for each employer. Please get in touch if you want a quote.
I answer below the questions I have been asked on this topic and the rules as they are currently:
Do I need to get agreement from my employees before designating them as furloughed workers?
Unless there is a right to furlough in the employment contract, and it is likely that most contracts do not contain this clause, employers must gain agreement with their employees on making them a furloughed worker and reducing their pay to 80%. It is not anticipated that employees will withhold agreement when it is explained to them that the likely only other alternative is to make them redundant.
What do I need to tell my employees about their pay?
Employers must pay employees at least 80% of their usual monthly earnings, up to a maximum of £2,500.They can claim for a for up to three months ― but this may be extended. These wages are subject to tax and NI in the usual way. BUT the employer NI and statutory minimum pension contributions will be reimbursed by HMRC the employee will pay the tax an NI as usual. Employers will pay the employees tax and NI in the usual way through the PAYE system.
Employers can choose to pay employees more than the £2,500 ― but they do not have to.
HOW IS THE PAY CALCULATEDFull time and part time employees For full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February 2020 should be used to calculate the 80%. Fees, commission and bonuses will not be included.
If the employee started work in February 2020, the employer will pro rata the earnings from that month. For full-time and part-time salaried employees, the employee’s actual salary before tax, as of 28 February 2020 should be used to calculate the 80%.
Once it has been worked out how much of an employee’s salary the employer can claim for, they must then work out the amount of Employer National Insurance contributions and minimum automatic enrollment employer pension contributions they are entitled to claim. Employees whose pay varies If employees have been employed (or engaged by an employment business in the case of agency workers) for a full year, employers will claim for the higher of either: the amount the employee earned in the same month last year, or an average of their monthly earnings from the last year.
If they have been employed for less than a year, employers will claim for an average of their monthly earnings since they started work.
The same arrangements apply if the employee’s monthly pay varies such as if the employee is on a zero-hour contract.
What will I need to make a claim?
At the moment the portal is not available and at the time of writing this is due to be set up in mid April – but do watch this space! Only one claim can be made at least every three weeks (minimum period of furlough). The employer will need: its ePAYE reference number the number of employees being furloughed the claim period (start and end date) amount claimed (per the minimum length of furloughing of three weeks) its bank account number and sort code its contact name its phone number The employer should make claim in accordance with actual payroll amounts at the point at which payroll is run or in advance of an imminent payroll.
The employer must pay the employee all the grant it receives for their gross pay, no fees can be charged from the money that is granted.
SOLE TRADER DIRECTORS AND THE RULES TO CREATE A FURLOUGH
Who can claim?
All employers can benefit from the scheme, even owner-managed businesses.
The government wants the support to be as inclusive as possible. There is no condition attached to having sufficient funds which for example have been applied to the business interruption loans.
Owner-managed businesses can make a claim from the CJRS, effectively they will be furloughing themselves and the understanding is that they do no income generating work for their business but can continue to run the business from a statutory perspective, for example preparing their accounts and returns.
Directors can however perform their statutory duties this is not a condition of their employment but part of their statutory duties to the company there are: Per the Companies Act 2006, general duties of the directors: (172) Duty to promote the success of the company (1)A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to— (a)the likely consequences of any decision in the long term, (b)the interests of the company’s employees, (c)the need to foster the company’s business relationships with suppliers, customers and others, (d)the impact of the company’s operations on the community and the environment, (e)the desirability of the company maintaining a reputation for high standards of business conduct, and (f)the need to act fairly as between members of the company. This does leave a good bit of scope for what the director can actually do.HOW DO I FURLOUGH?
First get in touch with your employee and explain the situation and get them on board the alternative will be redundancy so ti is likely they will cooperate. Employees still have the same rights as before.
Second prepare a furlough letter. We have one in the AS Taxation website link: https://astaxation.co.uk/news/practice-news/ You can copy and past the letter into a word document and amend it as necessary.
Keep in touch with your employees so that they are aware of any changes and reassure them that you are doing all you can and hope to get back to business as usual as soon as you can.
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