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Business Services  •  Coronavirus Advice  •  HMRC  •  Personal tax  •  Small Business

Coronavirus Business Support: Clarification on 80% payments from Government

By RJP LLP on 25 March 2020

Tax and NICs payable on salary subsidies

The Coronavirus Job Retention Scheme was unveiled by the Government on 20 March offering financial support to cover 80% of salary payments, to a cap of £2,500 per person.

It has now been clarified that income tax and employee national insurance contributions (NICs) will be payable on the 80% salary grants paid under this job retention scheme. HMRC has said, “individuals will pay income tax and national insurance contributions (NICs) on any payments received through this scheme as they are replacement for income in line with normal practice for benefits or grants that replace income.” There is no confirmation yet on whether employers’ NICs will also be payable.

Are self-employed workers included?

We also do not yet have clarification on how self-employed workers will be protected or how zero-hours workers will have their payments calculated. There are suggestions that compensatory pay for contract workers will be based on “an average reference period” which is to be confirmed by the Chancellor, potentially in the next daily Government briefing.

However from an accounting perspective, this scheme could be complex for self-employed workers who submit self-assessment tax returns, because the initial period designated spans two tax years – the new tax year will begin on 6 April 2020.

Ultimately there is a grey area in UK legislation over definitions of ‘worker’ and ‘employee’ so this will need to be clarified when any announcements about support for gig workers are made.

Further detail about the Coronavirus Job Retention Scheme

  • This scheme will operate for three months initially, and payments can be backdated to 1 March 2020, with a review on 31 May.
  • To access the grant, employers must place employees on temporary leave (subject to their contractual terms) and the government will pay the employer a cash grant worth 80% of their salaries. It will be a few weeks before any money is available and in the meantime the employer will need to continue with payments due to the employees. The Government has indicated the end of April as a likely timeframe for this to be in place.
  • The Government has acknowledged that the scheme may be open to fraud and abuse and it retains “the right to audit all aspects of the scheme with scope to claw back fraudulent or erroneous claims retrospectively.”
  • HMRC is working to produce detailed guidance but there are still many questions about the policy. We do not yet know if the scheme extends to company directors, employees with shares or zero hours contractors who work an average fixed number of hours a month but are on a flexible contract.
  • It is also not clear whether companies can split grants between staff, to make the decision about who to furlough fairer for everyone.

Whatever the final details, the Coronavirus Job Retention Scheme will not be cheap for the government to operate. Based on the £2,500 cap, estimates suggest that the 80% subsidy could cost the Treasury up to £4bn a month to run. This of course will depend on the scale of take-up, but it looks set to be a very popular scheme.

If you need help accessing any of these initiatives, or want to discuss the financial impact of COVID-19 with us, please email partners@rjp.co.uk.

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Tax and NICs payable on salary subsidies

The Coronavirus Job Retention Scheme was unveiled by the Government on 20 March offering financial support to cover 80% of salary payments, to a cap of £2,500 per person.

It has now been clarified that income tax and employee national insurance contributions (NICs) will be payable on the 80% salary grants paid under this job retention scheme. HMRC has said, “individuals will pay income tax and national insurance contributions (NICs) on any payments received through this scheme as they are replacement for income in line with normal practice for benefits or grants that replace income.” There is no confirmation yet on whether employers’ NICs will also be payable.

Are self-employed workers included?

We also do not yet have clarification on how self-employed workers will be protected or how zero-hours workers will have their payments calculated. There are suggestions that compensatory pay for contract workers will be based on “an average reference period” which is to be confirmed by the Chancellor, potentially in the next daily Government briefing.

However from an accounting perspective, this scheme could be complex for self-employed workers who submit self-assessment tax returns, because the initial period designated spans two tax years – the new tax year will begin on 6 April 2020.

Ultimately there is a grey area in UK legislation over definitions of ‘worker’ and ‘employee’ so this will need to be clarified when any announcements about support for gig workers are made.

Further detail about the Coronavirus Job Retention Scheme

  • This scheme will operate for three months initially, and payments can be backdated to 1 March 2020, with a review on 31 May.
  • To access the grant, employers must place employees on temporary leave (subject to their contractual terms) and the government will pay the employer a cash grant worth 80% of their salaries. It will be a few weeks before any money is available and in the meantime the employer will need to continue with payments due to the employees. The Government has indicated the end of April as a likely timeframe for this to be in place.
  • The Government has acknowledged that the scheme may be open to fraud and abuse and it retains “the right to audit all aspects of the scheme with scope to claw back fraudulent or erroneous claims retrospectively.”
  • HMRC is working to produce detailed guidance but there are still many questions about the policy. We do not yet know if the scheme extends to company directors, employees with shares or zero hours contractors who work an average fixed number of hours a month but are on a flexible contract.
  • It is also not clear whether companies can split grants between staff, to make the decision about who to furlough fairer for everyone.

Whatever the final details, the Coronavirus Job Retention Scheme will not be cheap for the government to operate. Based on the £2,500 cap, estimates suggest that the 80% subsidy could cost the Treasury up to £4bn a month to run. This of course will depend on the scale of take-up, but it looks set to be a very popular scheme.

If you need help accessing any of these initiatives, or want to discuss the financial impact of COVID-19 with us, please email partners@rjp.co.uk.