Chancellor announces Job Retention Bonus

Chancellor announces Job Retention Bonus

In his speech to Parliament, billed as a Summer Economic Update, the Chancellor laid out his plans to protect, support and create jobs.

Although many of the new measures he outlined were not aimed at directly assisting contractors, one measure stood out – the Job Retention Bonus.

Although Rishi Sunak quickly confirmed that the existing Coronavirus Job Retention Scheme (CJRS) would still end in October, he said that it was important that people who have been furloughed are supported back to work.

To help encourage employers to retain staff, the Job Retention Bonus will introduce a one-off payment of £1,000 to UK employers for every furloughed employee who remains continuously employed through to the end of January 2021.

To benefit from this payment, employees must be on the payroll continuously and earn above the Lower Earnings Limit (£520 per month) on average between the end of the Coronavirus Job Retention Scheme and the end of January 2021. Businesses that retain previously furloughed employees will receive payments in February 2021.

It is understood that this scheme will also be available to contractors who operate as an employee via their own Personal Service Company, who have been furloughed during the CJRS, as well as any other individuals that they employ and who have been furloughed.

PLEASE NOTE THAT THIS NEW GRANT ONLY APPLIES WHERE A DIRECTOR OR EMPLOYEE WAS FURLOUGHED AT SOME POINT BEFORE 30 JUNE 2020.

The furlough scheme continues to be one of the few financial support measures available to contractors.

Cogent will continue to help our clients at this difficult time and will provide the service of applying for this final Job Retention grant for client companies.

Coronavirus Precautions – Continued Compliance with Government Instructions

To ensure our team remains safe and to provide continuity of service throughout this challenging period, all Cogent staff will continue to work remotely for the time being as per Government instructions.

Thanks to our use of the latest technology, our team can operate remotely, which means that the support and services that you receive will continue to be delivered as smoothly as possible throughout this time.

Our office main number will continue to operate as normal.

Please be assured we will continue to work with you through this challenging time.

Please stay safe and well.

The Team at Cogent

From the Desk of the MD…

This month…

In recent months, I have of course written about Coronavirus and it‘s impact on our clients. In particular, we have been involved in helping clients who are out of work and able to make Coronavirus Job Retention Scheme (CJRS) claims. We make the claims on behalf of clients at no charge, regardless of how much time we need to spend to help clients weather these difficult times.

Just as the Government has been easing the lockdown rules, this month I too will ease off from writing about Covid and I’m sure that will be a welcome relief to you.

IR35 and the Off-Payroll rules were deferred at the last minute by the Treasury from kicking off in April 2020 to April 2021. Although the Lords committee and others such as the Institute of Chartered Accountants issued reports advising the Government that IR35 was a poorly devised tax back in April 2000 and it needed a proper rethink to make it a fair tax, it seems the Treasury is pushing on with bringing it in on April 2021. So, everyone needs to consider how they will deal with IR35.

Most end clients and agencies left the thinking of how to deal with IR35/Off-Payroll too late and were feverishly running around in February and March 2020 devising policies on the fly. This week, I saw that some end clients are now reviewing the processes and planning well ahead of April next year.

That is really good news as they are working correctly on assessing each contractor’s role in their Personal Service Company (PSC) to see if they can continue to work outside of IR35 in their PSCs, receiving gross payment without tax deductions.

The types of areas that need looking at are now familiar to most, I think. Substitution (which is always difficult to get in place), subcontracting (where the PSC brings in another professional to assist with their work, probably much more achievable than substitution), getting the project to refer to a defined scope of work, not moving to another project outside the agreed works scope without having a new contract, not working within specified weekly work hours, not requesting permission to take time off, not being instructed by the end client on HOW to complete the work (but can follow end client and industry standards), use of own equipment (prior to most people working from home in recent months, it was considered impossible for IT security to use own laptops but this may now have changed).

These areas and others are relevant for each PSC to show that it is in business and not working like a disguised employee, which is what gets HMRC so hot under the collar.

It is very pleasing to see some end clients using the deferral year, despite the Covid problems, to plan for a more intelligent and constructive review of their contracts and working practices.

It would be good for all contractors to now start to engage with their end clients and prospective end clients to prompt them to start creating new contracts, policies and working practices that will allow contractors who are properly in business to continue to operate as PSCs without tax deductions and not leave the plan to late in the tax year as was done last year, and then make hasty and unfair decisions which damage both the end client’s business and that of contractors.

Good luck with working towards a fairer contractors’ tax regime.

Best regards,

Victor Korman
Managing Director
Cogent Accountants

Option to defer your July Income Tax Self-Assessment payment

Due to COVID-19, you can delay making your second payment on account. This deferral for income tax self-assessment applies to the second payment on account for 2019/20 due on 31 July 2020 which is deferred until 31 January 2021.

This is an automatic offer and no application is required. Please note this deferral is optional and some taxpayers may prefer to make the July payment to avoid a larger payment in January 2021.

If you have any queries regarding this, please contact our Tax Dept – tax@cogentaccountants.co.uk

Treasury Committee demands greater support for UK’s 710,000 freelancers

A new report from the Treasury Committee has recommended that the Government offer greater financial support to contractors and freelancers, who have been largely excluded from existing COVID-19 measures.

The committee’s report, entitled ‘Economic impact of coronavirus: Gaps in support’, has been unanimously supported by all member of the Treasury Select Committee.

It says that the current support available is insufficient as it misses out important groups working through limited companies and the newly self-employed, which make up nearly a million workers in the UK.

Many individuals who operate via a limited company have fallen through the cracks of current Coronavirus support measures, according to the report, with many relying on the Coronavirus Job Retention Scheme that is based on PAYE salary.

This scheme does not take into consideration dividend payments and prevents even directors from working, which means it is of limited use to many contractors.

In comparison, self-employed workers can benefit from the Self-Employed Income Support Scheme (SEISS), which allows them to make a claim based on trading profits and permits them to carry on working.

The report says: “The Government must assist these people if it is to completely fulfil its promise to do whatever it takes to protect people from the economic impact of Coronavirus.”

In particular, it points out that there must be “a practical solution to supporting hundreds of thousands of limited company directors who are missing out on support because they pay themselves in dividends.”

The report also pointed out that “there are likely to be hundreds of thousands of people who have set themselves up in business since April 2019 who do not meet the eligibility criteria for either the SEISS OR CJRS scheme.”

In response, it has recommended, an “urgent review to see how it can extend support to those newly self-employed who are unable to benefit.”

The report also addressed the fact that thousands of freelancers on short-term contracts have missed out on support, despite paying being paid via PAYE.

This is because they are not engaged in a contract for long enough and have not earned more than half of their income from self-employment or because their contract stopped for reasons other than COVID-19 or that their employer, where they have one, has chosen not to place them on the CJRS.

The report concludes that the Government should “recognise the impact of the Coronavirus on PAYE freelance workers and establish a system of support which ensures that this group of people can access financial support during the crisis. We recommend it gives this group access to financial support that equates to 80 per cent of their average monthly income earned in the first 11 months of the 2019–20 tax year, based on their PAYE tax record.”

Responding to the report, Andy Chamberlain, Director of Policy at IPSE said: “This report is timely and sorely needed by over a million struggling freelancers and others across the UK who have fallen through the cracks in the Government support during Coronavirus. We are very glad the Treasury Select Committee listened to our evidence and warning about the freelance groups that have been left behind.

“There are over 710,000 freelancers who work through limited companies, most of whom are now burning through their savings to get by. This group is a startling and glaring omission from the Government support.

“There are also hundreds of thousands of people who became self-employed just last year, who, in the early stages of their freelance career, are likely to be in a particularly precarious financial position. The Government has left these groups completely out in the cold.

“Recent HMRC data shows over million fewer eligible people than expected drew down on the Self-Employment Income Support Scheme.

“We urge the Government to turn these unused funds to help struggling, left behind freelance groups. We are far from the economy and the freelance sector returning to normal: as the Select Committee report highlights, these vital groups urgently need more support if they are to get through the coming months.”

Contractors encouraged to push for IR35 2021 reforms postponement

Lobbyists at Stop The Off-Payroll Tax campaign are calling on contractors to get behind them and focus on halting the IR35 reforms of 2021.

The call comes as the reforms, contained in the latest Finance Bill, reach the committee stage in Parliament.

Directly addressing contractors via Twitter, the lobby group said: “Please don’t confuse MPs by asking them to table amendments to get public sector IR35 Off-Payroll rules suspended. They’re not in the Finance Bill.”

MPs can still table amendments to the 2021 reforms at the next ‘consideration’ stage, but a suspension of the 2017 reforms is not possible via the current bill.

Instead, campaigners who wish to inform MPs of the adverse impact of the 2017 framework are being encouraged to do so, but only as a reason to stop it’s April 2021 variant.

The ICAEW has already reminded contractors that to bring about change in the private sector, changes to the reforms in the public sector would need to be made first. It believes the four most fundamental areas of change are:

  • PSCs being made to pay Employer NI;
  • Aligning employment and social security rights;
  • Statutory payments for the IR35-caught; and
  • HMRC strategy.

The ICAEW tax faculty said: “Given that many private sector organisations have already incurred significant costs and implemented systems changes…the Government has a unique opportunity to consider whether the rules currently being legislated will work as intended, and to act upon the evidence of those businesses.”

And Finally – Monkeys raid Indian lab for Coronavirus patient blood samples

Authorities in India have reported that a troop of monkeys has attacked a medical technician and stolen important blood samples belonging to patients who had tested positive for Coronavirus.

The attack, which took place at a state-run medical college in Meerut, occurred when the lab official was walking across campus and was set upon by a group of rhesus macaques.

The monkeys snatched the blood samples before retreating to the top of a tree, where eyewitnesses said they saw them chewing on them.

The samples came from four COVID-19 patients who are undergoing treatment.

According to the Reuter’s report, Dr S. K. Garg, an official at the college where the monkey attack occurred, wasn’t sure whether the monkeys might contract the virus as a result. “No evidence has been found that monkeys can contract the infection,” Garg said.

Earlier this year, Sky News reported that monkeys in India have been congregating in places that are normally crowded with humans following the implementation of lockdown measures. Some locals are concerned that the primates are struggling because they are too reliant on humans for food.

HM Revenue & Customs publishes detailed guidance on calculating furlough claims from July onwards

HM Revenue & Customs (HMRC) has now published detailed guidance on the operation of the Coronavirus Job Retention Scheme (CJRS) from 1 July 2020 onwards.

The CJRS currently provides grants to employers covering 80 per cent of the usual wages of furloughed employees – who remain on the payroll but must not carry out any work – up to a cap of £2,500 a month as well as employer National Insurance Contributions (NICS) and pension contributions.

However, from 1 July, employers will be able to make new flexible furlough agreements with employees that enable them to return to work on a part-time basis, while the employer will still be able to claim a CJRS grant for the hours not worked. Only employees who have been furloughed for a full three-week period up to this point will still be eligible to be furloughed.

From 1 August, CJRS grants will cease to cover the costs of employer NICs and pension contributions in respect of furlough pay.

Then, in September, the value of CJRS grants will reduce to 70 per cent of furloughed employees’ usual wages, with employers required to top-up the remaining 10 per cent so that furloughed employees still receive 80 per cent of their usual wages, capped at £2,500 a month.

Finally, October will see the value of CJRS grants fall to 60 per cent of furloughed employees’ usual wages, with employers having to contribute the remaining 20 per cent.

Employers are responsible for calculating the correct amounts to claim from the scheme, with HMRC expected to take a hard line on errors that are not corrected quickly.

The new guidance walks employers through the various calculations needed to work out the amounts they need to claim in respect of furloughed employees in different circumstances over the remaining months of the scheme.

As you know, we have been making the Coronavirus Job Retention Scheme (CJRS) claim for those of our clients who are unfortunately not working due to Coronavirus and furloughed, and have now made many successful claims. We have done this without charge and with great enthusiasm to help our clients through the difficult times and we will of course continue to do so.

As part of the changes to the scheme, HMRC has also confirmed that claims for periods ending up to 30 June must be made by 31 July, while claims periods from 1 July onwards must begin and end in the same calendar month and last at least seven days. If an employee is furloughed in June and continues to be furloughed for their full hours in July, separate claims will need to be submitted, even if this differs from an employer’s own pay periods.

Lowering the cost of working from home

The Government has begun to lift some of the COVID-19 restrictions. However, it still recommends that, wherever possible, employees should work from home if they can.

Although some workers are returning to their usual place of work many will have to continue to remote work for some time – with some businesses deciding to move to homeworking altogether.

It is clear to see why some businesses may begin to favour home working following the lessons learned from this crisis, especially if they can reduce the costs of running a business.

Of course, the reality is that some of these costs will be transferred over to employees and contractors. So, what can employees and contractors do to reduce the costs of working from home?

Taxation is a key area where individuals can reduce or reclaim some of the costs of homeworking. To help with this our experienced team have answered some common questions about home working and tax.

Can I claim for equipment that I have purchased?

For most office-based employees, the obvious piece of equipment they will need to be able to work from home is a computer, but it could also include stationery and consumables such as printer ink.

HM Revenue & Customs (HMRC) provides exemptions in respect of items and equipment provided to employees to enable them to carry out their jobs.

Provisions covered by the exemption include stationery, office furniture, office and workshop supplies, as well as computer equipment.

The exemption may also extend to the provision of home telephone lines but only in circumstances where there is a clear business case for this.

Two further conditions need to be met for the exemptions to apply:

  1. The provision must not be used significantly for private purposes by the employee or a member of the employee’s family; and
  2. The provision must be provided solely for the employee to be able to carry out their duties and must not belong to one of the following excluded categories:

– Vehicles, boats and aircraft;

– Any construction, extension or alteration of the employee’s living accommodation, such as the installation of a loft conversion office space or a garden office.

Have the Government changed the rules at all in light of COVID-19?

The Government has announced a temporary tax and National Insurance Contribution (NIC) exemption that ensures that home office equipment purchased by employees, where reimbursed by the employer, does not attract tax or NICs.

The temporary exemption will affect expenses from 16 March 2020 (the day the Government asked that employees work from home where they could) until the end of the 2020/21 tax year.

To be eligible for relief the equipment must:

  • have been bought for the sole purpose of enabling the employee to work from home as a result of the Coronavirus outbreak
  • be exempt from income tax if it had been provided directly to the employee by or on behalf of the employer.

The move should ensure employees are not financially penalised as a result of changes in working arrangements during the pandemic.

What about the costs to my household?

You will likely incur additional costs, such as heating and lighting. Typically, for an employee, an employer can reimburse these costs tax-free where there is a ‘homeworking arrangement’ between the employee and the business and the employee must work at home under the terms of these arrangements.

A notable exception here is costs that are unaffected by whether or not an employee is working from home or not, like mortgage repayments or rental payments.

Similarly, the cost of existing broadband connections cannot be reimbursed tax-free, although new connections can be, where the employee does not already have a broadband connection.

What happens if my employer or client doesn’t meet these additional costs?

From 6 April 2020, an employer can pay employees up to £6 a week (£26 a month) to cover additional costs if they have to work from home. For previous tax years, the rate is £4 a week (£18 a month).

In circumstances where the employer does not meet the additional costs of an employee working from home – such as heating, water and electricity – but requires the employee to work from home, it may be possible for the employee to claim tax relief in respect of these costs.

Expenses for both personal and business use are not eligible for tax relief. Employees can use HMRC’s online tool to determine whether particular expenses would be eligible for tax relief here.

I am a contractor and not an employee and have been told that the support usually offered to employees does not apply to me?

Contractors often work via a limited company and are not classed as a worker, which may mean that they are not entitled to the same rights as employees.

However, contractors working from home can claim expenses for having part of their home used as an office.

To be eligible for relief you must ensure that you have a dedicated room/workspace available for work purposes.

This room should be adequately equipped for business purposes to indicate it is a genuine business facility and not part of your normal domestic arrangements.

HMRC are often very stringent on deciding whether contractors are eligible for home working expense. If you claim these expenses you must ensure you actually do some work there.

Spending a few minutes, a week in the office typing up an invoice or sending the occasional email may not be sufficient, especially if it isn’t related to generating income.

How much can I claim when I use my home as an office?

Most contractors will benefit from a general allowance of £312 a year towards household expenses. No records need to be kept to claim back this allowance.

However, you can claim over £312 in a year, if you provide evidence of why the expense was required.

The amount you can claim should be based on an appropriate proportion of the specific costs arising of light, heat, insurance, rent, rates and other household costs that arise from using your home as an office.

For example, let’s say one room in a house with four rooms is used as an office. It would be fair and appropriate for one-quarter of the total cost of running the home to be claimed.

Be aware though, if you are making a claim for phone calls these need to be on a genuine business line, or are claimed on a personal line using an itemised bill.

Remember you can’t claim back any expenses which could have a dual purpose, i.e. personal and business, such as line rental and broadband.

Each claim made should be fully justified as a genuine cost incurred as a result of business activity undertaken at your home office.

HMRC is likely to be undertaking a close review of homeworking expenses post-COVID-19 and will want to clearly see evidence to support claims or it may take action.

Can I claim for the cost of office furniture or equipment if I am a contractor?

If you do need to buy office furniture or equipment you may be able to claim it back through capital allowances.

Typically, anything you use in your work that is likely to last two years or more, apart from vehicles, that is wholly and exclusively for the use of the company, i.e. little or no private use, can be a company expense and reclaimed via capital allowances.

Contact Cogent

Expenses can be complex at the best of times and if you are unfamiliar with homeworking, but have been required to work from home due to COVID-19 you must seek out the support you need to claim back any costs.

To find out how our experienced team at Cogent Accountants can help you with this, please contact us today.

Chancellor unveils changes to furlough scheme

Announced in March, just before the stringent Stay at Home measures limited the circumstances in which any of us were able to leave our home, the Coronavirus Job Retention Scheme (CJRS) has been seen as the flagship Government measure to limit the economic fallout from the Coronavirus crisis.

Since March, the scheme has allowed employers to furlough employees – keeping them on the payroll, while requiring that they carry out no work for the employer.

Employers have been able to claim a grant worth up to 80 per cent of their usual wages, capped at £2,500 a month, plus employer National Insurance Contributions (NICs) and automatic enrolment pension contributions.

However, the Chancellor, Rishi Sunak, has now announced a series of changes to the scheme, which will begin to take effect in the coming weeks.

A system of ‘flexible furloughing’ will come into effect from 1 July, allowing employers to bring back furloughed employees for any amount of time on any shift pattern, while still able to claim a grant in respect of the time not worked when they otherwise would.

Employers will have to pay employees at their usual rate of pay for any hours they work, while also covering the cost of Employer National Insurance Contributions (NICs) and minimum employer automatic enrolment pension contributions that this pay attracts.

They will need to reach new flexible furlough agreements with any furloughed employees brought back on a part-time basis.

From 1 August, CJRS grants will cease to cover Employer NICs and pension contributions, with this cost passing to employers. The grant will continue to cover 80 per cent of furloughed employee’s usual wages, up to a cap of £2,500 a month.

However, from 1 September, the value of the grant will fall to 70 per cent of a furloughed employee’s usual wages, capped at £2,187.50 a month. Employers will be expected to contribute the remaining 10 per cent plus NICs and pension contributions to reach a combined total payment to the employee of 80 per cent of their usual wages, up to a cap of £2,500 a month.

October will see the value of the Government contribution fall again to 60 per cent, capped at £1,875 a month, with employers expected to contribute 20 per cent of a furloughed employee’s usual wages plus NICs and pension contributions to reach the total of 80 per cent, capped at £2,500 a month.

At the same time, the Chancellor confirmed the closure of the scheme to new entrants from 30 June. After this point, employers will only be able to furlough employees who have been furloughed for three full weeks at any point before 30 June.

This means the last day an employer can furlough an employee for the first time will be Wednesday 10 June.

Furthermore, after 30 June, employers will not be able to claim for more employees in a claim period than the maximum number they have claimed for in any period under the scheme in it’s current format.

Full details of how the scheme will operate from this point are expected to be announced on 12 June 2020.

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