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To furlough or not to furlough? That is the question

August 6, 2021

In March 2020, the Coronavirus Job Retention Scheme, also known as furloughing was announced by the Chancellor of the Exchequer to provide a mechanism to allow businesses to retain employees without the need for them to work, but receiving a minimum level of their monthly salary up to £2500.Whilst not a recognised term within UK employment law, this scheme will allow employers to place their employees on “furlough leave” for a minimum of three weeks as an alternative to redundancy with the agreement of the employee.During this time, the employee must not engage in any paid work activity, however they are able to undertake charitable work or training. Employees and businesses do not need to demonstrate that they are suffering from any financial hardship but the government does reserve the right to audit companies at a later period to ensure that the money has been honestly sought and paid out (80% of an employee’s monthly salary will be paid by the government)The scheme has been put in place for three months from March 01, however the Treasury has already made it clear that extensions will be considered should the U.K lockdown period last longer than anticipated.This scheme will only applicable to PAYE employees who were in place prior to the 28th February 2020 and incudes directors of small limited companies who pay themselves salaries and dividends via their own PAYE scheme. This is also the case for employees in umbrella schemes getting paid through PAYE although more clarification is being sought about the value calculation of the pay outs.However, For the millions of agency, freelance and contractors not covered by PAYE payroll, they will not be applicable for furloughing and will be very much left out in the cold by this government scheme.I am self-employed - what is available to me?Pendragon has pulled together a summary of what assistance is available to workers not covered by a furlough. Sadly, these do not even cover a minority of financial losses that will be suffered by contract staff and they will do little to sweeten an already bitter pill.

  1. Statutory sick pay will be paid to self-isolators and those caring for self-isolators within the same household from day one and not day four of the illness.
  2. Establishment of the Self-Employment Income Support Scheme (SEISS) which will provide direct cash grants of 80% of monthly trading profit for the last 3 years, up to £2500 per month for 3 months up to May. This is aligned to the job retention scheme for furloughed PAYE employees. HMRC will use existing information to determine eligibility and invite applications once the scheme is fully operational. You cannot access to this scheme and apply for a grant unless invited.
  3. All self-assessment income tax payments due in July 2020 and VAT payments due between 20 March 2020 until 30 June 2020 have been deferred until 2021 (although you can make a payment or part payment in that time. Similarly, if you are owed rebate tax money HMRC will make a payment to you)
  4. Universal Credit has received a £7 Billon cash injection to cover new claimants. This includes the self-employed, gig workers, contractors and agency staff not covered through PAYE. Advances will be made available to those eligible to receive universal credit.

Falling between the cracksEven with the Government intervention, there will still be people who ”fall between the cracks” according to the Freelancer and Contractor Services Association (FCSA) including those are the newly self-employed or with intermittent salaries. The FCSA is also urging the government to give more guidance about actual levels of pay outs for the self-employed and umbrella workers to ensure parity with their PAYE peers.Unprecedented timesThe only thing that is certain today is that this is an unprecedented situation which we have not been faced with before and one that may continue for an as yet undetermined period.Until the mass testing commences and stability returns to business, those in self-employment, umbrella workers and contractors in the UK will feel very much left with limited financial lifelines to weather the storm.

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