What does furloughed mean?

Business owners are trying to remain positive despite many small businesses going into survival mode during the current Covid-19 crisis.

Established accountancy practice Bevan Buckland LLP has been reaching out to clients to help and advise those most severely impacted by the spread of Covid-19 and the dramatic restrictions on activity currently in place.

While all businesses are being impacted by the current crisis after the initial shock of the last few weeks, they are now rapidly coming to terms with the “new normal” and taking steps to ensure their survival in the longer term.

The Coronavirus Job Retention Scheme

The Coronavirus Job Retention Scheme is the measure providing most immediate help to businesses in their decision making, enabling those which have been completely shut down to mothball their operations for the time being while still being able to pay staff a wage.

Under the scheme, HM Revenue & Customs (HMRC) will refund 80% of the salary, up to £2,500 per month, of those workers who have had to be furloughed  – temporarily sent home because there’s no work.

The Government has now released more details on the scheme and here are some key points:

  • To qualify, staff must be on an employment contract as at February 28, 2020, meaning staff laid off after this date may be re-employed and furloughed
  • Employees must be furloughed for a minimum of three weeks
  • Companies must continue to pay Employers’ National Insurance and the statutory auto enrolment pension contributions which HMRC will also refund
  • For employees on zero hours or variable hours, their pay should be calculated based on average pay for the last 12 months or the equivalent months’ pay in 2019, whichever is the greater up to the £2,500 limit.

The scheme will be administered by HMRC through an online application process which has not yet been set up. The Government is encouraging all employers to make use of the scheme rather than make workers redundant or laying them off.

Harri Lloyd Davies

Harri Lloyd Davies, Partner at Bevan Buckland LLP

“We are fielding a large number of queries from clients regarding the process of putting staff on furlough and what the qualifying criteria is,” says Bevan Buckland partner Harri Lloyd-Davies.

“As a starting point there are two important considerations. Firstly, employment law still applies, so businesses should make sure they have an appropriate process in place to agree which staff should go on furlough and that this is documented and agreed with the individual employees concerned. Secondly, businesses should consider the spirit of the scheme and not do anything that might cause HMRC to query or reject their claim in the future.”

Key advice for the business community

  • Eligible employees are those that are paid through PAYE and have an employment contract in place as at 28th February 2020
  • Employees should be put on furlough if there is no work for them as a direct result of the coronavirus crisis
  • Employees should not undertake any work for the firm while on furlough or seek alternative employment while being paid their furloughed salary
  • Employers can make up the additional 20% of salary if they wish, although they are not required to
  • Payments should be processed through payroll and it is believed they are still subject to income tax and national insurance
  • Employees remain employees of the business and employment rights continue to accrue, such as holiday and length of service

The Government is backing a number of other initiatives

VAT and self assessment income tax deferrals will be automatically applied. Businesses or individuals expecting to make these payments should review whether they want to defer these.

There is rates relief for small businesses and those in the hospitality and leisure sectors.

In Wales there is also a small business grant scheme being set up through county councils.

The Coronavirus Business Interruption Loan Scheme is being administered by banks to support businesses which were viable before the crisis but now need additional financing.

There is an increase in the amount of Statutory Sick Pay that some businesses can reclaim.

The HMRC Time To Pay service allows businesses to defer other tax liabilities that are due.

Some details of the above schemes are still emerging and Bevan Buckland is advising businesses to keep up to date through information being released by the Welsh Government, their local council, their banks and HMRC. It is also advising its self-employed clients about Government measures to help them.

Bevan Buckland is working hard to keep an up-to-date list of FAQs and information regarding the schemes updated on its website and inform clients as more details are released.

The company said that what it was also seeing was the innovative and entrepreneurial spirit of its clients coming through as they reposition their businesses to continue to provide a service to their customers where possible. Some clients are developing their online business or re-purposing their activities.

Bevan Buckland has started offering webinars to clients so that it can communicate with clients more directly. The latest webinair can be viewed now.

A real game changer

Alison Vickers

Alison Vickers, Managing Partner at Bevan Buckland LLP

The current crisis is not just about short term impact, but will also change the way businesses and customers operate and interact long after it has passed.

“Whilst we continue to be concerned about the risk of businesses going under during the current crisis, we have been heartened by the proactive and positive approach most of our clients have taken to protecting and preserving their businesses for the longer term,” said Bevan Buckland managing partner Alison Vickers.

“Our clients accept that people’s health and the wellbeing of the community is paramount for the moment and are focusing on taking the steps needed to support their employees and preserve their cash flow, so that when restrictions are lifted they can pick up from where they left off.

“There is still a huge amount of uncertainty, but the key is to make decisions on those things you can control and stay on top of the help and support available as we know more. Most importantly businesses should understand their figures and have a clear plan for their cash flow over the next six months, planning for the worst and hoping for the best.”

For further contingency planning advice for your business in the wake of the Covid-19 outbreak, please contact Bevan Buckland LLP on 01792 410100 or email us mail@bevanbuckland.co.uk