Government to phase-in ‘flexible furloughing’ by ending three-week minimum

A contractor accountant was right to predict to ContractorUK that the Coronavirus Job Retention Scheme would end the three-week furlough period when the chancellor updates it.

In fact, in line with the prediction by Intouch Accounting’s Patrick Gribben, the government said on Friday that employers can bring back furloughed staff part-time and “decide” all their hours.

“This means that employees can work as much or as little as the business needs, with no minimum time that they can furlough staff for,” says tax body the AAT.

'Flexible furloughing'

Also outlining on Friday the practical upshot of the change to CJRS, which will be effective from July 1st as part of a major update to the scheme, was ClearSky Accounting.

“‘Flexible Furloughing’ will be introduced from…July,” reflected the firm’s Clarke B, alluding to the three-week furlough requirement easing to a one-week minimum claim period.

On behalf of company directors, the IoD said: “The greater flexibility…[follows] our members' calls to bring in part-time furloughing as soon as possible, and to reduce the minimum furlough period.”

And as “many companies will be operating below normal levels” added the group’s Edwin Morgan, “bringing people back flexibly means they can ramp up activities gradually.”

'CJRS to close to new entrants on June 30th'

However the phasing in of the new CJRS from Wednesday July 1st means the phasing out of the existing, ‘old’ CJRS from Tuesday June 30th.

The government confirmed: “The scheme will close to new entrants from 30 June. From this point onwards, employers will only be able to furlough employees that they have furloughed for a full 3-week period prior to 30 June.

“This means that the final date by which an employer can furlough an employee for the first time will be 10 June, in order for the current 3-week furlough period to be completed by 30 June. Employers will have until 31 July to make any claims in respect of the period to 30 June.”

'Not much time until June 10th deadline'

“With this in mind,” said Mr Morgan, the Institute of Director’s policy director, “the cut-off for new employee applications from the end of June doesn't give much time for those who have done all they can to hold off using the system.”

David Nunn at the Association of Accounting Technicians (AAT) confirmed: “The final date by which an employer can furlough an employee for the first time will be June 10th, for the current three-week furlough period to be completed by June 30th.”

However, as well as the new timings, employers using the CJRS (which includes Personal Service Companies as employers of PSC directors), will be concerned about the update’s new financial parameters.

'Contributions can't be claimed back from August'

“Employer National Insurance and pension contributions paid for by the employer [for the rest of June, and throughout July] can no longer be claimed back from 1st August,” warned ClearSky’s Clarke B in an online post.

“[And] from 1st September, the government will allow 70% of salary to be reclaimed with the additional 10% (or more) topped up by the employer, [but] this will move to 60% and 20% (or more) from 1st October, and the scheme will close on 31st October.”

Broadly in line with his assessment, the outlay for employers starts at 5% (of pre-furlough gross employment costs), due to Employer NI and pension contributions being required from August.

'Time to rebuild income and cashflow'

In September, which is the first month that the state’s 80% salary coverage reduces -- to 70%, the employer outlay increases to 14%, due to the new 10% top-up requirement plus the previous month’s contributions.

From October, the outlay maxes out at 23%, due to the government putting up just 60% salary coverage, requiring a 20% top-up from the employer, on top of the Employer NI and pension contributions.

But generally, the enterprise community is reacting positively. The British Chambers of Commerce for example, says the tapering off of wage contributions from the state will give firms “time to rebuild their income streams and cashflows.”

Others say the contributions required of employers to keep paying furloughed workers’ wages is smaller, or more gradual than expected, although the maximum outlay is in line with the proportions floated when the scheme update was leaked last week.

'Unlikely to work for temps'

For tiny business supplying services on a temporary basis, such as contractors, or those entities supplying those tiny businesses, such as agencies, the reaction has been less positive.

“Co-payment for furlough will make sense in many sectors,” acknowledges Neil Carberry, chief executive of the Recruitment & Employment Confederation.

“But it is unlikely to work for temps at a time when agencies have little income from clients with which to meet the bills. Because of that, getting the temp market working again must be a priority”.

'HMRC won't hesitate'

According to the small print of the CJRS update, employers will be required to submit data on the usual hours an employee would be expected to work in a claim period and actual hours worked.

HM Treasury, which is due to provide further details on June 12th, said: “Employees who believe they are not getting their 80% share can also report any concerns to the HMRC fraud hotline. HMRC will not hesitate to take action against those found to be abusing the scheme.”

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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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