HMRC has added a facility to the Coronavirus Job Retention Scheme (CJRS) claims process which allows employers to declare over-claims of grants, and offset the excess grant claimed.

The lack of an error correction facility in the CJRS process has been the number one bugbear for tax agents and employers, who have sometimes struggled to calculate the correct amounts of employee costs to claim under the furlough scheme.

Over-claims

On 5 June HMRC added information to its guidance on how to work out the amount to claim through the coronavirus job retention scheme.

Where the employer has over-claimed the CJRS grant in an earlier claim they must adjust the amount claimed in the current claim, to take account of the amount of over-claim, and tick a box to say a correction is being made.

The HMRC guidance says the employer should keep records of the amounts of the CJRS claims, the claim period for each employee, the calculations and any corrections made, for six years.

Under-claims

The online error correction facility only applies to over-claims of CJRS grants. If the employer has under-claimed the CJRS grant due they should not adjust the next CJRS claim.

To correct an earlier under-claim of the CJRS grant the employer should call HMRC on the coronavirus technical line: 080 0024 1222. The HMRC officer can put through a parallel claim for the extra grant due and provide a claims reference number.

How much?

The HMRC factsheet about the new flexible furlough scheme states that around 40% of CJRS claims have not included employer NIC costs or employer pension contributions, which are both permitted as part of a claim.

The same factsheet said the average level of wages claimed under CJRS so far is £1,380 per month. This average monthly pay would generate an employer class 1 NIC liability of £89.42 and employer workplace pension contributions of £25.80, indicating an under-claim of £115.22 per employee per month using 2020/21 thresholds.

Where the employer has claimed the Employment Allowance (now £4,000 per year), any employer’s NIC covered by that allowance should be excluded from the CJRS claim.

Penalties are possible

The draft legislation, which brings the CJRS grant into the tax system to be taxed as income, also includes provisions that allow HMRC to claw back any coronavirus support payments which were not due.

Where directors do not notify HMRC of the over-claim of a CJRS grant, a penalty may be applied under the failure to notify rules, treating the error as deliberate and concealed. This would mean a penalty would be imposed at 30% to 100% of the overpayment if the employer voluntarily disclosed, or 50% to 100% of the overpayment where the disclosure was prompted by HMRC.

HMRC is expected to take a light-touch approach to penalties, and not penalise for genuine errors.

The domestic reverse charge for the construction industry has been delayed once again by five months to 1 March 2021.

On Thursday 28 May, HMRC’s press office confirmed that the new domestic reverse charge rules for the construction industry would commence on 1 October 2020. But just a week later, HMRC announced that the introduction would be delayed until 1 March 2021.

The five-month delay is both welcome and sensible, one less thing for builders to worry about. But what does it mean for clients?

Here are four key issues to consider:

1. Cash flow challenges

The new start date is that it is very close to 31 March 2021, which is the deadline set for paying the VAT arrears deferred during the VAT payment holiday between 20 March and 30 June 2020. This creates potential cash flow issues.

Bob is a subcontractor builder working for main contractors on commercial projects, which means his business will be affected by the new reverse charge rules. He uses the cash accounting scheme on his VAT returns, which are completed on a calendar quarter basis. He invoiced two big jobs as follows:

31 December 2020: £40,000 plus £8,000 VAT. The sum of £48,000 was paid by his customer on 14 January 2021.

31 March 2021: £50,000 no VAT – paid by his customer on 14 April 2021. Output tax of £10,000 will be accounted for in Box 1 of the customer’s VAT return instead under the new reverse charge rules and not paid to Bob.

Bob’s cash flow will be boosted by £8,000 VAT between 14 January 2021 and 7 May 2021 – i.e. the period between when his customer pays the VAT on his December sales invoice and the payment date for his March 2021 VAT return.

But the potential cash flow boost of £10,000 between 14 April and 7 August 2021 is lost on the March invoice for £50,000. This working capital loss comes just 14 days after Bob had to settle the arrears on his March 2020 VAT return that he delayed paying during the Covid-19 holiday payment window. This means his business has suffered two big cash flow VAT hits in a short period of time.

Solutions

It is important that builder clients are aware of this potential double strike to their cashflow.

Possible solutions might be to encourage banks to provide an increased overdraft facility or to encourage the VAT deferred in the holiday period to be paid back in stages by clients before the 31 March deadline, if profits and working capital allows. A softening of the double blow, so to speak.

2. Diary entry

This is the second deferment to the new reverse charge rules. The first deferment from 1 October 2019 to 1 October 2020 was largely caused by the confusion and uncertainty of Brexit. Many clients and advisers also found the reverse charge rules difficult to grasp.

It might be worth making a diary entry for 1 December 2020 to start liaising with clients three months ahead of the new 1 March date. A suggestion would be for early January 2021 but there are other things going on in that madhouse tax month.

The problem is that postponing this issue until after 31 January 2021 will be too close to 1 March.

3. Monthly VAT returns

If all or most of your client’s income will be subject to the reverse charge, they will be VAT repayment traders – with input tax to claim on materials and overheads but very little or no output tax to pay.

In that case it makes sense to submit monthly rather than quarterly VAT returns after 1 March 2021, to accelerate input tax recovery, assuming the amounts to claim are worthwhile.

4. Flat rate and cash accounting schemes

Another action point for builders is to leave the flat rate scheme, although one suspects it is not used by many builders anyway. It will also make sense to leave the cash accounting scheme in many cases, so that input tax can be claimed on the date the purchase invoice is received from suppliers instead of the payment date.

On Friday the Chancellor outlined a new flexible coronavirus job retention scheme (CJRS) to apply from 1 July, and tapered government support for employers from August onwards.

It was no surprise that financial support for employers will start to taper off, but it was a surprise that flexible furloughing will be introduced a month earlier than expected from 1 July.

Flexible furlough periods

This amounts to a new CJRS from 1 July, which requires no minimum furlough period. However, no new employees can be furloughed for the first time from July.

A furlough period for any employee who has not previously been furloughed will have to begin by 10 June in order for 21 days of furlough to be completed by the end of the old scheme on 30 June. It will not be acceptable for furlough to begin after that and extend into July to make a three-week furlough period, as the rules change on 1 July.

No minimum furlough

The financial support does not change for July, as the government continues to pay:

• 80% wage support up to a £2,500 cap; plus
• Employers’ NIC and 3% pension costs on furloughed hours.

Once the new rules are in place, employees can be furloughed for any length of time, even down to a few hours, and work the rest of the pay period, subject to the employer gaining their agreement in writing.

The challenge here is that the government is trying to develop rules and guidance that cover all types of contract. I predict problems in particular for workers on zero hours. How do you work out what the “normal hours” are for zero-hours workers?

Guidance under wraps

We won’t get the answers to such questions until 12 June, when the government promised to release more guidance. Presumably this delay is based on a concern that any guidance provided before 10 June might allow people to game the system. In my view, however, the vast majority of reputable businesses need that guidance now, not in a fortnight’s time.

We do know that the £2,500 cap will be pro-rated to the furloughed hours. For example, if the employee is working 40% of the month, the furlough cap is 60% of the monthly cap, so £1,500.

Claims deadline

Some employers have put off making any CJRS claims, particularly those with close to 100 employees on furlough. They may have done so in the hope that HMRC would allow spreadsheet uploads of employee details for smaller businesses, but there seems no prospect of that now.

Those reluctant employers need to make their CJRS claims now because no new employers (as well as employees) will be admitted to the new CJRS scheme from 1 July. The CJRS claim needs to be made in June and backdated to mid-March, given that was realistically the earliest furloughing date. An employer who has made already made a claim will be able to make their final claim for any period up to 30 June 2020 by 31 July, but it looks as if there would need to be two claims then, one for furlough periods up to 30 June and one for July.

It’s important to see 30 June as the end of the CJRS under the rules as provided for in the current legislation with a new scheme beginning from 1 July.

Numbers game

Under the “new” scheme from 1 July no CJRS claim can contain more employees than in any claim up to and including 30 June 2020.

This will be interesting given the outstanding technical problems payroll professionals are still having. Certain claims can’t be made without HMRC intervention because the validation to the February 2020 FPS doesn’t work where employees have been:

• Transferred from another employer under TUPE into the PAYE scheme
• Reinstated
• Moved into the PAYE scheme after a restructure.

All of these situations are permissible, but the CJRS mechanism blocks the claim.

Hours and minimum wage

Another stumbling point in the new flexible CJRS is that any hours worked will need to be paid at or above the national minimum wage (NMW) rates, which increased by the highest ever amount from 1 April 2020. Given there have been lots of issues with employers misunderstanding the operation of salary sacrifice, and the fact that claims should have been based on post-sacrifice pay, it’s likely that salary sacrifice and the interaction with the NMW wage will cause trouble after 1 July.

It would be helpful if BEIS were to provide some FAQs on NMW and furloughing as soon as possible.

Reporting hours?

Under the new CJRS employers will need to report “hours worked” and “usual hours”. Is the choice of the word “report” crucial?  This implies that a report needs to be done through RTI as otherwise I would have expected the guidance to say “hours will need to be included in the claim details”.

Currently within the FPS field 54, “the number of normal hours worked” has four choices or “not applicable”, which provides data used to validate tax credit claims. Is this the field that is being referred to, or is there a more significant change to RTI that has to be implemented in less than four weeks?

Given there are no new claimants to tax credits now and Universal Credit has no hours’ dependency, is this reporting requirement just for statistical monitoring, or part of a compliance strategy?

Winding down

Financial support will change from 1 August as follows:

• August – 80% wage support up to £2,500, but no employer NIC or pension costs covered
• September – 70% wage support up to £2,187.50, but no employer NIC or pension costs covered
• October – 60% wage support up to £1,875, but no employer NIC or pension costs covered

It is important to note that the reduction in wage support doesn’t allow employers to change the employees’ terms and conditions to reduce pay to these new levels. Employees must still receive 80% of normal pay, so the employer will have to make up the difference.

Guidance sources

So far the only guidance we have is a short fact sheet and a brief summary that has been added to the main CJRS guidance pages. We will have to wait until 12 June to find out more.

The Chancellor has announced plans to end the eight-month coronavirus job retention scheme (CJRS) and self-employed income support scheme (SEISS), with taxpayers’ contributions gradually withdrawn from August

Admitting that the furlough scheme “cannot continue indefinitely”, the Chancellor Rishi Sunak outlined his plans during the Downing Street press briefing to reduce taxpayer contribution towards the furlough scheme, but with the flexibility to bring employees back part-time in July.

“I believe it is right, in the final phase of this eight-month scheme to ask employers to contribute, alongside the taxpayer, towards the wages of their staff,” said Sunak.

And in a surprising twist, the Chancellor also committed to extending the self-employed equivalent scheme for the same period, with applications for the slightly reduced second and final grant opening in August.

Furlough next steps

Recognising that businesses have been through an “incredibly difficult time”, the Chancellor started his speech by revealing how the slow introduction of the employers’ CJRS contribution will work.

At first, the Chancellor explained, employers will only have to cover national insurance and employer contributions, which he said accounts for 5% of total employment costs.

The main change comes into force from September when the government furlough contribution drops from 80% to 70%, with the employer having to pick up the 10%. Sunak reasoned that from this point, “employers will have had the opportunity to make any necessary changes to their workplaces and business practices”.

Then in October, the final stage of the furlough scheme, employers will have to pay 20%, with the government’s contribution shrinking to 60%. After this, the government contributions will finish and the scheme will come to an end.

Part-time furlough

Although employers will have to prepare for the inevitable end of the scheme, the Chancellor has listened to large and small businesses’ request for a more flexible furlough.

As Sunak announced earlier this month, a new element of furlough 2.0 is to enable workers to return part-time whilst still being under the scheme – and this aspect will arrive one month earlier than originally planned, from 1 July.

To illustrate how the scheme will work, Sunak used the example of how a furloughed worker could return for two days and would be paid as normal, while the government would cover the other three days.

However, Sunak added that the introduction of part-time furloughing means the scheme will have to close to new entrants from the end of June, as the flexible aspect is restricted to current furloughed workers. This gives employers only until 10 June to add any new employees to the scheme.

The accompanying government factsheet explains that further guidance on flexible furlough and how employers should calculate claims will be published on 12 June.

Surprise extension of the SEISS

Freelancers and self-employed workers who had urged the Chancellor to extend the SEISS in line with furlough scheme were handed a lifeline at the end of Sunak’s speech, with news of a final grant.

The self-employed scheme will open for applications in August, but with the grant reduced to 70% of their average monthly trading profits. As with the SEISS scheme, the money will be paid in a single instalment covering three months’ average monthly profits up to £6,570, down from the £7,500 cap of the first grant.

The government has not changed the eligibility criteria for the second grant. As with the first version, individuals will have to confirm that they’ve been adversely affected by Covid-19. However, a self-employed worker does not have to have claimed the first SEISS grant in order to be eligible for this final handout.

The self-employed income support scheme has so far supported 2.3m people with claims worth £6.8bn. The first grant is still open for applications but self-employed workers have until 13 July to apply.

Community Reaction

The revised furlough scheme’s finer detail is a daunting prospect. Some of these calculations are going to be horrendous especially where salary periods don’t match up nicely with the calendar month.

Blick Rotherberg’s Nimesh Shah raised concern on the possible impact of flexible furlough. “The government needs to be wary of more workers being placed on furlough, which will increase the cost of the scheme,” he said. “There will be a natural hit on productivity if workers are being unnecessarily placed on furlough because businesses want to take advantage of the flexible furlough arrangements.”

Stakeholders lined up to praise the government’s support. Mike Cherry, the national chair of the Federation of Small Business, called both schemes “a true lifeline for all those protected by them”.

Adam Marshall, the director general of the British Chambers of Commerce, said: “The gradual reduction in furlough contributions from the Treasury will give businesses additional time to rebuild their income streams and cash flows.”

And Derek Cribb, CEO of IPSE said the SEISS extension was an “overwhelming relief to self-employed people”.

The story so far

First announced in March, the furlough scheme has supported more than 8m jobs and was slated to initially last for “at least three months”. However, the Chancellor extended the scheme until October as the UK gradually eases the lockdown and attempts to adjust to some form of normality.

The Chancellor promised the changes would come before 31 May, but as the month fast approached June, people were anxious to hear the news so they could prepare.

The portal for claiming under the SSP rebate scheme will open on 26 May. Ian Holloway sets out how you should prepare to submit claims on behalf of your clients.  

We have been waiting for this rebate scheme to launch since these announcements were made in March 2020:

• On 3 March the Prime Minister said in the House of Commons that COVID-19 related SSP would payable from the first qualifying day rather than after three waiting days (a three day wait still applies for employees who are absent with illnesses not related to Covid-19). A press release confirmed this the following day.
• On 11 March Chancellor Rishi Sunak confirmed in his Budget 2020 that the reimbursement of SSP would only be for employers with fewer than 250 employees.

Guidance and legislation

We have been inundated with SSP legislation in recent months, mainly concerning eligibility for paying SSP where an individual is self-isolating or shielding.

On 19 May 2020, HMRC issued updated guidance letting us know that the reclaim scheme will be called the Coronavirus Statutory Sick Pay Rebate Scheme (CSSPRS). There are two more important pieces of legislation to refer to:

1. The Statutory Sick Pay (Coronavirus) (Funding of Employers’ Liabilities) Regulations 2020
2. The Statutory Sick Pay (Coronavirus) (Funding of Employers’ Liabilities) (Northern Ireland) Regulations 2020

These come into force on 26 May 2020, the same day as the SSP reclaims portal opens.

The guidance and the legislation advise that an employer has to be eligible in two regards:

• It must have fewer than 250 employees on 28 February 2020. This applies to all the PAYE schemes operated by the employer so we have to consider any connected employers, just as we do for the employment allowance
• The employer was not ‘in difficulty’ on 31 December 2019

The definition of ‘in difficulty’ for this purpose is found in various communications from the EU Commission on the guidelines on the agreed UK state aid support scheme for small and medium-sized enterprises (SMEs).

This reference to EU law relates to the fact that the CSSPRS is being operated under the temporary EU framework granting state aid to small and medium-sized employers. Importantly, the amount of state aid received under all such support schemes must not exceed the following limits for these trade sectors:

• €120,000 – aquaculture and fisheries
• €100,000 – agriculture
• €800,000 – anything else.

Pre-check

Regardless of who will be making the claim under the CSSPRS, you will need to ascertain whether the size criteria is met (fewer than 250 employees on 28 February 2020) and whether the business would be judged to be ‘in difficulty’ on 31 December 2019.

What periods can a claim cover?

An SSP rebate can be claimed by eligible employers for the first 14 days per employee in these circumstances:

• absence through COVID-19 related sickness or self-isolation starting on or after 13 March 2020

• absence through COVID-19 related shielding, following public health advice and where the employee is in receipt of a letter from the GP or the NHS, for periods starting on and after 16 April 2020.

How to claim

The online reclaims portal will open on 26 May 2020, just after the Bank Holiday weekend. Like the CJRS, the service will be accessed via a government gateway user ID. Tax agents will be able to make claims on behalf of their clients.

Information requirements

The updated guidance is clear that the following information will be needed:

• The employer PAYE scheme reference number
• A contact name and telephone phone number
• UK bank or building society account number, sort code, and name of the acount, for Bacs payments
• The total amount of COVID-19 SSP paid for the claim period
• The number of employees being claimed for
• The start date and end date of the claim period

Each claim can cover multiple employees, and there is no indication that each employee will have to be identified individually in the claim by saying their NI number.

Declarations

The updated HMRC guidance is less clear that the following declarations will need to be made (this is quoted in the legislation):

• A declaration that the employer was not in difficulty on 31 December 2019
• A declaration confirming the amount claimed will not result in the amount of state aid received making them exceed the allowable cap for their sector
• A declaration the information stated in the claim is true and accurate

Read the guidance

We strongly urge employers and tax agents to read the HMRC guidance in full, as this is HMRC’s interpretation of the legislation.  Employers are particularly advised to read the parts about:

• records to keep
• time limits for claiming

Note the danger of double claims, HMRC warns employers: ‘You can claim back from both the coronavirus job retention scheme and the coronavirus statutory sick pay rebate scheme for the same employee, but not for the same period of time for that employee.’

Plus, don’t forget two things:

1. The SSP rate changed on 6 April 2020 (from £94.25 to £95.85 per week), therefore, claims may be at different rates.
2. The 28-week maximum SSP rule has not changed. SSP cannot exceed 28 weeks in any period of incapacity for work (PIW) or series of linked PIWs. Check that SSP was payable in the first place and does not exceed the maximum number of weeks payable.