Contractor furlough payments by PSCs could start at £500 a month

Twenty-five per cent has been floated as the chunk of their Coronavirus Job Retention Scheme wage that limited company directors may have to fork out while on furlough.

Expected to be confirmed this week by HM Treasury, the contribution will be required of all employers who are furloughing staff once the government reduces its share from August.

So the timeline for employers (such as PSCs) to contribute to CJRS furlough pay has not changed since the chancellor outlined it, alongside the scheme’s extension to October.

'More detail needed'

But the Times reports that Rishi Sunak has now settled on between 20-30% for their contribution, so bosses face paying £500 or more where the £2,500 maximum is being paid.

“The formal position is expected to be announced by the chancellor [this] week, along with more detail which is needed”, says Sally Hulston, employment partner at Knights plc.

She pointed out that, as Mr Sunak has stated already, employers are going to be allowed to take furloughed workers back part time for as many hours as they want per week.

'Against the spirit of the scheme'

Reflecting online, solicitor Tom Moyes said that whether the detail on employers paying towards CJRS wages will specify ‘no further furlough’ for those employees, is unclear.

“[Because] surely, [if not], an employer could now furlough the entire workforce and then bring them back on a ‘part time basis’?” asked Moyes, a partner at Blacks Solicitors.

In a LinkedIn post discussing the Times piece, the solicitor cautioned: “Obviously, this [move] would be entirely against the spirit of the scheme.”

One option which HMT had, but has not approved was to reduce the furlough period from 3-week minimum blocks, “so people could be brought on and off furlough,” said Ms Hulston.

'Minimum furlough period removed'

But accountant Patrick Gribben says this must now be a prospect. “From August, we are likely to see the three-week minimum for furloughed status removed”.

The head of client services at contractor accountancy firm Intouch Accounting also told ContractorUK: “And I think we will also see businesses being able to claim that workers have been furloughed for part of their working hours.”

As to changes to the CJRS in force now, law firm Chartergates observes that HMRC has updated the scheme guidance “twice in the last two weeks alone,” suggesting the pace of change to still be significant.

'At least six years'

But the content is too. In one of those two updates, HMRC says that once they have claimed under the furlough scheme, employers must keep a copy of all relevant records “for at least six years.”

Relevant records includes documents showing the amount claimed; the claim period for each employee; and “your calculations in case HMRC needs more information about your claim.”

However, many contractors are still wrestling with the initial CJRS guidance.

'Cannot be furloughed by previous employer'

In fact, one ContractorUK reader points out that HMRC says a worker “cannot be furloughed by a prior employer,” seemingly at odds with guidance in Q&As featuring Liberty Bishop and Aaron & Partners.  

But the guidance from both firms is accurate. “In those [two] Question & Answer pieces ….the individual had not actually been put on the payroll of the new employer,” clarifies ReLegal Consulting.

The contractor advisory added: “The [CJRS] rule relating to [no furlough by] a previous employer seems to refer to where you have multiple employers consecutively and you have been furloughed by a current employer. You cannot then be furloughed by a previous employer.”

'Reduced pay rates'

For many other contractors, it is less the eligibility and more the financial ramifications of the CJRS which is its most concerning aspect.

Adrian Marlowe, managing director of recruitment law firm Lawspeed says: “The scheme ultimately requires the employee to agree to be furloughed.

“And in many cases, this meant that employees faced reduced pay rates  -- the equivalent to the furlough grant amount. And at the same time, they were required to stop working.”

'A contractor could do some work, not all'

Asked about the requirement for employers to financially contribute to the scheme from August, another lawyer, Emma Bartlett, suggests that for PSCs, it might make the CJRS even less appealing than it is already.

“The [financial] benefit of furlough for a director personally will…[continue to] be small if the director receives a combination of wages and dividends, but the wages part is very low.” 

A partner at Charles Russell Speechlys, Ms Bartlett also told ContractorUK: “I think the best way for the ‘employer’ to ‘share the cost’ of furlough will be to allow a more flexible furlough arrangement

“For example, the contractor could do some work but not all of their normal working and the furlough could then top up -- subject to the statutory cap, meaning less reliance on the furlough grant because the employer is earning income from the contractor doing some work.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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