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Month: April 2020

Coronavirus Job Retention Scheme

Coronavirus Job Retention Scheme

The online claim portal for the Coronavirus Job Retention Scheme (CJRS) went live on 20 April 2020, allowing employers who have furloughed staff as a result of the COVID-19 pandemic to claim grants from the Government equal to 80% of the employee’s wages (capped at £2,500 per month). Employers can also claim the associated employer’s National Insurance contributions and the minimum employer pension contributions required under auto-enrolment. More than 67,000 employers made a claim under the scheme within the first half hour of the portal opening.

Who can claim?

The CJRS aims to help employers affected by the COVID-19 pandemic to maintain their workforce rather than lay-off staff. It is open to any employer with a UK payroll as long as they:

  • had a UK payroll in existence as at 19 March 2020 in respect of which RTI submissions had been made by that date;
  • are enrolled for PAYE online (employers not enrolled for PAYE online as at 19 March can do so after that date); and
  • have a UK bank account.

What employees are covered?

Claims can only be made in respect of employees who have been furloughed – i.e. laid off from work temporarily. Employers must confirm in writing to the employee that they have been furloughed and make any necessary changes to the employee’s contract of employment. An employee must be furloughed for a minimum of three weeks for a claim to be made.

The employee must have been on the employer’s payroll on 19 March 2020 and the employer must have made an RTI submission in respect of the employee by that date. This may mean that employees who were taken on after the February payroll or who missed the February payroll cut-off date fall outside the scheme, even if they had done some work for the employer prior to 19 March. Claims can, however, be made in respect of employees who were on the payroll as at 28 February 2020 and who were made redundant or stopped working for the employer before 20 March 2020 if the employer puts them back on the payroll and furloughs them. This can be done after 19 March 2020. To qualify, an RTI submission must have been made in respect of the employee by 28 February 2020.

It does not matter what type of contract the employee has – the scheme applies to full-time workers, part-time workers and to those on flexible or zero-hours contracts. Claims can also be made by directors of personal and family companies (but only in respect of their PAYE income).

However, furloughed employees cannot do any work for the employer that generates income while furloughed. This means that claims cannot be made for workers who are on reduced pay or reduced hours. Company directors can, however, continue to fulfil their statutory duties. Apprentices can also be furloughed under the scheme and can continue to train whilst furloughed.

What can be claimed?

Employers can claim 80% of a furloughed worker’s wages, plus the associated employer’s National Insurance and the minimum pension contributions that the employer is required to make under auto-enrolment. Amounts claimed in respect of an employee’s wages must be paid over to the employee in full. Employers can, if they so choose, top up the employee’s wages above the 80% covered by the grant. Grants are pro-rated where the employee is only furloughed for part of the pay period and should be made from the date that the employee starts furlough.

For the purposes of the scheme, wages are the regular payments that the employer is obliged to make to the employee and include:

  • regular wages payable to the employee;
  • non-discretionary overtime;
  • non-discretionary fees;
  • non-discretionary commission payments; and
  • piece rate payments.

However, the following payments should not be included as wages for the purposes of a claim:

  • payments made at the discretion of the employer or a client where there was no contractual obligation to pay, such as tips, discretionary bonuses or discretionary commission payments;
  • non-cash payments;
  • non-monetary benefits, such as benefits in kind (for example, company cars and private medical insurance).

Calculating the wage claim

For full and part-time employees on a salary, the employer can claim 80% of their salary for the last pay period to 19 March, capped at £2,500 per month (proportionately reduced where the employee was not furloughed for the whole period).

Where an employee’s pay varies and the employee has been employed for at least 12 months, the claim cam be made either by reference to the same pay period in 2019 or by reference to the employee’s average monthly earnings for 2019/20. If the employee has worked for less than 12 months, their average monthly earnings since they started work should form the basis of the claim.

Claiming employer’s National Insurance

Grant payments paid to employees are liable to PAYE tax and National Insurance (employee’s and employer’s) as for normal payments of wages and salary. However, employers can claim the employer’s National Insurance due on grant payments from HMRC. The guidance on the Gov.uk website explains how this is calculated.

Claims cannot be made for employer’s National Insurance covered by the employment allowance. While there is no obligation to claim the allowance from the start of the tax year, it is possible that HMRC may regard delaying claiming the allowance until after the end of the scheme as tax avoidance.

Claiming pension contributions

Where the furloughed employee is within auto-enrolment, the employer will need to pay pension contributions at the minimum level of 3% on earnings above £520 per month (2020/21).

How to make a claim

Claims can be made online.

The claim can be made by the employer or by an agent authorised to act for the employer for PAYE purposes. However, claims cannot be made by agents who are only authorised to file RTI returns on the employer’s behalf.

When making a claim, the following information is required:

  • UK bank account and sort code;
  • employer PAYE scheme reference number;
  • the number of employee’s being furloughed;
  • the National Insurance number for each furloughed employee;
  • the employee’s payroll number (although this is optional);
  • the start and end date of the claim;
  • the full amount of the claim, including employer National Insurance contributions and pension contributions;
  • contact name and phone number;
  • the employer’s corporation tax unique tax reference, self-assessment unique tax reference (as appropriate) or the company registration number.

Claims can be backdated to 1 March 2020. The money should be paid into the employer’s bank account within six working days of the date on which the claim was made. Claims can be made prior to the payroll date so that the employer has the money available to pay furloughed employees.

It should be noted that HMRC will undertake checks for fraudulent claims.

Further help

Speak to use to find out whether you are eligible to make a claim and for help in working out what you can claim. Read more about the scheme on the Gov.uk website.

April 23, 2020

Making Tax Digital – soft landing extension

Making Tax Digital – soft landing extension

One-year extension for MTDfV soft landing

In a welcome response to COVID-19, HMRC has extended its digital links ‘soft landing period’ by twelve months to April 2021.

HMRC Email

In a widely distributed email issued on 30 March 2020, HMRC stated:

“We understand that the impact of COVID-19 is creating extremely difficult times for all, and we are committed to helping in every way possible all those businesses facing unprecedented challenges.

Therefore, we are providing all MTD businesses with more time to put in place digital links between all parts of their functional compatible software. This means that all businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place.”

Digital journey

From April 2019, once those mandated to comply with VAT MTD have entered accounting data into their business’s accounting software, they have been required to transfer, recapture or modify that data using digital links. Effectively, once VAT data has been digitally captured the rest of its journey until the submission of a VAT return must be a digital journey, without manual intervention.

Soft landing

HMRC recognised that not all businesses would have digital links in place from day one and allowed a period of grace, the ‘soft landing period’. HMRC promised that, where businesses were trying to meet the statutory digital end to end journey during the ‘soft landing period’, the department would not impose penalties for non-compliance.

The effect of the ‘soft landing’ announcement meant that for the first year of mandation, businesses are not required to have digital links between software programs.

For most, MTD for VAT rules have applied from VAT period starting on or after 1 April 2019. Although there was a smaller group where mandation was deferred until the start of the first VAT return period on or after 1 October 2020.

What it means

All businesses mandated to comply with MTD for VAT now have until their first VAT return period, starting on or after 1 April 2021, to put digital links in place.

Given the coronavirus related troubles affecting practically all businesses in the UK, this extension to the ‘soft-landing period’ is another sensible easement that is to be much welcomed.

April 16, 2020

Optimal salary for 2020/21

Optimal salary for 2020/21

A popular profit extraction strategy for personal and family companies is to pay a small salary and to extract further profits as dividends. With new National Insurance thresholds applying for 2020/21, what is the optimal salary for the new tax year?

Starting point – what can be paid free of tax and National Insurance?

Assuming the director has the full personal allowance for 2020/21 of £12,500 available, the optimal salary will be dictated by National Insurance considerations. Unless the director already has the 35 qualifying years needed to secure a full single tier state pension, it is worthwhile paying a salary at least equal to the lower earnings limit, set at £6,240 for 2020/21, to ensure that the year counts for state pension and contributory benefits purposes.

For 2020/21, the point at which employer contributions start (the secondary threshold) is lower than the point at which employee contributions start (the primary threshold). The secondary threshold is set at £8,788 for 2020/21 (£169 per week; £732 per month), whereas the primary threshold is set at £9,500 (£183 per month; £792 per month).

Assuming that the director is over the age of 21 and the employment allowance is not available (as is the case where the sole employee is also a director), the maximum salary that can be paid free of tax and National Insurance is £8,788 – equal to the secondary threshold.

Employer contributions for under 21s do not start until the upper secondary threshold for under 21s is reached (set at £50,000 for 2020/21). Thus, where the director is under 21, a salary equal to the primary threshold of £9,500 per year can be paid free of tax and National Insurance. This is also the case if the employment allowance is available (for example, in a family company scenario).

Is it beneficial to pay a higher salary?

Salary costs and any associated National Insurance are deductible in computing the company’s profits for corporation tax purposes. Thus, if the corporation tax deduction (at 19%) is more than any National Insurance or tax paid on the additional salary, paying a higher salary can be worthwhile.

If the director is 21 or over and the employment allowance is not available, it is worthwhile paying a salary up to the primary threshold of £9,500. On earnings between £8,788 and £9,500, employer National Insurance contributions of 13.8% are due, but this is outweighed by the corporation tax deduction on the additional salary and the associated employer’s National Insurance. However, once the primary threshold is reached, both employer and employee contributions are due (at 13.8% and 12% respectively) on further earnings. As these outweigh the corporation tax deduction, it is not worth paying a salary above £9,500 a year. So, where the director is aged 21 or over and the employment allowance is not available, the optimal salary for 2020/21 is £9,500 a year (£792 per month).

If the director is under 21 or the employment allowance is available, as seen above, a salary of £9,500 (equal to the primary threshold) can be paid free of tax and National Insurance. Above this level, primary National Insurance contributions are payable at 12% until the personal allowance of £12,500 is reached. As the associated corporation tax deduction is higher than the National Insurance cost, it is worth paying a salary of £12,500. Above this, however, income tax at 20% is also payable, outweighing the corporation tax deduction. Consequently, in these circumstances, the optimal salary is equal to the personal allowance of £12,500 a year.

Determine your optimal salary

As shown above, the optimal salary depends on personal circumstances. Speak to us for help in crunching the number and determining the optimal salary for your situation.

April 8, 2020

Supporting employees working from home

Supporting employees working from home

As a result of the COVID-19 pandemic, many employees are now working at home in accordance with Government instructions to help reduce the spread of Coronavirus.

Providing equipment to employees working from home

Employees may need tools and equipment to enable them to work from home. For example, employees who are office based, may need a computer, access to software and possibly a printer. They may also need stationery and printer ink. What are the tax implications if the employer provides these or if the employee meets the cost?

Employer provides equipment to work at home

Employers can provide equipment and supplies tax-free to employees working from home as long as certain condition are met:

  • any use of the accommodation, supplies or services for private purposes by the employee or by members of the employee’s family or household is not significant;
  • where the accommodation, supplies or services are provided otherwise than on premises occupied by the employer, the sole purpose of the provision is to enable the employee to perform the duties of their employment;
  • the provision of the accommodation, services or supplies does not comprise an excluded benefit (such as a car or the construction of a home office).

The exemption will cover the provision of office furniture, such as desks and chairs, computer equipment and stationery. Further guidance on what is covered by the exemption can be found on the Gov.uk website.

Employee meets cost of homeworking equipment

The exemption outlined above does not apply if the employee meets the cost of any equipment that they need to work from home.

If the employee meets the cost, the normal rules for deductibility of expenses incurred by employees apply – that is to say, the employee can claim a deduction for revenue expenses that are incurred wholly, exclusively and necessarily in the performance of the duties of the employment. No deduction is allowed for capital items, such as office furniture and computers. However, employees can claim a deduction for the cost of stationery and suchlike.

Employee meets cost initially and claims it back

From a tax perspective, there is a difference between the employer providing equipment and supplies to enable the employee to work from home and the employee meeting the costs initially and claiming it back from the employer, despite the fact that in each case the employer ultimately bears the cost.

Where the employer provides the equipment, the exemption outlined above applies as long as the associated conditions are met. However, problems can arise if the employee meets the cost and claims it back. In this case, the relevant exemption is the one for paid and reimbursed expenses. This covers paid and reimbursed expenses that would be deductible if met by the employee, i.e. revenue expenses wholly, exclusively and necessarily incurred in the performance of the duties of the employment. Consequently, reimbursed capital expenses fall outside the exemption, are taxable and must be reported to HMRC. To avoid this situation, the employer should provide the equipment directly instead.

Additional household expenses

Employees working from home will incur additional household expenses as a result. They may use additional electricity and gas, have higher household insurance or incur additional cleaning costs.

Employers can pay employees a tax-free allowance of £6 per week (£26 per month) to help cover some of these additional costs. Prior to 6 April 2020, the allowance was £4 per week (£18 per month). As long as the employer does not pay more than this, no evidence is required of the amount spent. Guidance on the relief is available on the Gov.uk website.

Employers can pay higher amounts tax-free to cover additional costs of working at home as long as these can be substantiated.

Employees cannot claim a deduction of £6 per week if the employer does not pay the allowance – the usual rule for deductibility of employment expenses apply.

Speak to us

Speak to us to discover how you can support employees working from home in a tax-free manner.

April 1, 2020