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Furloughing employees – FAQs for employers on the coronavirus job retention scheme

The government has again updated its guidance on how furlough will work in practice under the Coronavirus Job Retention Scheme.

On Thursday 23 April 2020, the government issued further updates to its guidance for employers on claiming for employee wages through the new Coronavirus Job Retention Scheme, guidance on how to work out 80% of wagesand separate guidance for employees. (The guidance was originally published on 26 March 2020 and has previously been updated on 4 April, 9 April, 15 April and 17 April.)

This follows the earlier publication, on 17 April, of a step-by-step guide for employers on how to claim through the Coronavirus Job Retention schemeupdated information on claiming back Statutory Sick Pay and a Treasury Direction under the Coronavirus Act 2020 which sets out the legal framework for the scheme.

Below we set out the key points from the most recent guidance and then answer some of the frequently asked questions about the scheme.

Key points from latest guidance

  • The updated guidance published on 23 April clarifies that a collective agreement reached between an employer and a trade union is acceptable evidence that a furloughed employee agreed to be furloughed.
  • The updated guidance has also clarified the options for re-hiring employees, including those on fixed term contracts (resolving some earlier confusion over the question of whether employees on fixed term contracts could be re-hired).
  • The latest update also provides more clarity on the process for making a claim in practice. It says it is up to the employer to decide on the length of each claim period, based on the frequency of payroll.Employers will need to make sure they include all of the employees they want to furlough for each claim period, because they will not be able to make another claim for the same period or one that overlaps with it.It is not currently possible to amend a claim once submitted (although HMRC are looking at this).
  • There is no further guidance on any of the other tricky issues, including the position of shielding/sick workers, holidays, what is meant by wages that are “conditional” (which cannot be claimed for) and the ongoing concern about what evidence of employee agreement will be required.

Who can use the scheme?

Can we only use the scheme if redundancy was the alternative?

The government previously indicated that the furlough scheme was an alternative to redundancy, lay-off or unemployment. Although the guidance for employees refers to furlough as applying when the employer is unable to operate or has no work for the employee to do, the guidance for employers says that all employers are eligible to claim under the scheme and that the government recognises that different businesses face different impacts from coronavirus. 

However, the guidance makes clear that the scheme is “designed to help employers whose operations have been severely affected by coronavirus” and that employers that cannot maintain their current workforce because of this can make use of the scheme. The Treasury Direction says that the scheme applies to employees who are furloughed, “by reason of circumstances arising as a result of coronavirus or coronavirus disease”.

Ultimately, it seems that employers may be allowed some discretion, but they should not be abusing the scheme. The guidance makes clear that the government will check claims made through the scheme and that claims based on dishonest or inaccurate information or found to be fraudulent will need to be repaid in full to HMRC. An online portal will be made available for employees and the public to report suspected fraud. The Treasury Direction also says that no claim may be made if it is “abusive” or “otherwise contrary to the exceptional purpose” of the scheme.

Which employers is the scheme open to?

The scheme will be available to all UK employers, including businesses, charities, recruitment agencies and public authorities, of any size and in any sector. To be eligible, employers must have created and started a PAYE payroll scheme on or before 19 March 2020, enrolled for PAYE online, and have a UK bank account.

Rotating furlough and other options where there is still work, but less of it

Can we rotate employees on furlough?

We think so, yes. Some employers have work for some staff, but not enough work for all. One of the most pressing questions since the scheme was first announced was whether employees could rotate employees on furlough or if they would have to choose some employees to be furloughed while others stayed at work.

The guidance states that employees can be furloughed multiple times. Each separate instance must be for a minimum period of three consecutive weeks (one period can follow straight after an existing furlough period) and when employees return to work, they must be taken off furlough. This indicates that employers can rotate employees on furlough, so long as each employee spends a minimum of three weeks on furlough.

Can we make some people redundant and furlough others?

Yes. The guidance clearly says that you do not need to place all your employees on furlough. 

How should we select which employees should be furloughed?

Workers who cannot work from home and who currently have no work to do will be obvious candidates for furloughing. Otherwise, employers may need to consider a process of calling for volunteers, pooling and selection – as with a redundancy process. There is a risk of claims (including discrimination claims) if the process is not handled correctly.

Can we do a partial furlough to put somebody on reduced hours?

No. An individual cannot work for you at all if they are furloughed.

If you have some work for an individual, but not enough, you can still have a discussion with them about going down to a reduced working week. They will need to agree to this, except in the unlikely event you have reserved the right to put them on reduced pay for reduced work, and they will not be on the furlough scheme. 

What can we claim through the scheme?

How much is the subsidy?

HM Revenue & Customs (HMRC) will reimburse 80% of furloughed workers’ regular wages, up to a cap of £2,500 (gross) per worker per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer contributions on that wage.

There is an argument that this amount is reduced if a furloughed employee falls sick and becomes entitled to SSP (even if they are not moved from furlough onto SSP) but the Treasury Direction and HMRC guidance conflict on this point.  This is explained in more detail in the section on sick workers below.

How do we calculate regular wages?

For salaried employees, you must use the actual salary before tax, as of 19 March 2020. If you have already placed employees on furlough based on their salary as of 28 February 2020, and this differs from their salary on 19 March, you can use the 28 February date instead for the first claim you make. For employees whose pay varies (for example because they work different hours each month), you can claim for the higher of either:

  • the same month’s earnings from the previous year
  • average monthly earnings from the 2019-20 year

If an employee with variable pay has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.

If the employee has worked for less than a month, you should use a pro-rata approach.

An online calculator is now available (from Monday 20 April) to help employers work out how much can be claimed as wages, national insurance contributions and pension contributions. The guidance provides a number of worked calculations based on a variety of scenarios reflecting the different ways employees could be paid.

The guidance makes clear that no grant will be declined or repayment sought based solely on the choice of pay calculation used by the employer – provided a reasonable choice of approach is taken.

Is the wage calculation based on pre- or post-salary sacrifice wages?

Post-salary sacrifice wages as of 19 March 2020 should be used. Benefits provided through salary sacrifice schemes (including pension contributions) that reduce taxable pay should not be included.

HMRC has confirmed that coronavirus can count as a life event that could warrant changes to salary sacrifice arrangements, provided this is reflected as a change in the employment contract.

What about payments which we don’t describe as salary or wages?

The guidance says you can claim for any regular contractual payments, including wages, non-discretionary overtime, fees, commission payments, and piece-rate payments. However, any discretionary (non-contractual) payments cannot be included, such as tips (including those distributed through troncs), discretionary bonuses and discretionary commission payments. Non-cash payments, benefits in kind and salary sacrifice schemes are also excluded.

The Treasury Direction adds that “conditional payments” are also excluded and it is unclear exactly what this means, and which sorts of payments it might apply to. Many payments are arguably “conditional”. The Treasury Direction also says that payments based on performance (of the business or individual) cannot be claimed for unless they arise from a legally enforceable agreement, understanding, scheme or transaction. 

What about payments to LLP members?

Only payments which are not affected by the overall amount of the LLP’s profits or losses, payments which are fixed, and payments which are variable (but are varied without reference to the overall amount of the profits or losses of the LLP) can be claimed.

What about pension payments?

You can reclaim the minimum mandatory employer pension contribution. This claim can be made on top of the £2,500 cap. The latest guidance confirms that this is based on the subsidised furlough pay.

The minimum contribution under the auto-enrolment regulations is 3% of an employee’s income above £520 per month (from 6 April 2020). Pension contributions over and above this cannot be claimed through the scheme but you will need to maintain them, unless you agree something else with employees (and proposing a reduction in pension contributions could trigger pension consultation obligations).

What about benefits such as health insurance, gym membership etc?

The scheme does not include the cost of non-monetary benefits provided to employees, including taxable benefits in kind. Benefits will need to be maintained, however, unless you agree something different with furloughed employees. The guidance confirms that no part of the furlough grant should be used to pay for the provision of benefits or a salary sacrifice scheme.

Employers that offer permanent health insurance or death-in-service benefits should check with their scheme provider about what salary would be used in the event of a claim – would it be normal annual salary or pay during furlough?

Can we keep some of the grant?

The guidance makes clear that the entirety of the grant received to cover an employee’s subsidised furlough pay must be paid to them in the form of money and that no part of the grant should be netted off to pay for the provision of benefits or a salary sacrifice scheme. The government will require all employers to agree to return any grants back to HMRC immediately should they become unable or unwilling to use it to pay the employee’s salary and employer national insurance contributions and pension contributions.

Which employees can we furlough?

Does someone need to have been on the payroll on 28 February or 19 March 2020 to be put on furlough?

Employees must have been employed on 19 March 2020 and individually notified to HMRC on a Real Time Information (RTI) submission on or before 19 March 2020. (RTI is the PAYE notification to HMRC.) Employees hired after 19 March 2020 cannot be furloughed or claimed for, unless they were on the payroll on 28 February and are being rehired in order to be put on furlough.

What if we’ve already made redundancies?

If your employees were on your payroll and notified to HMRC on an RTI submission on or before 28 February, and they have been made redundant since then, it is possible to give those former employees the option of being rehired and then put straight on the scheme. This applies even if they were not rehired until after 19 March. 

The guidance now confirms that employees who were made redundant on or after 19 March 2020 can also be rehired and put straight onto the scheme - so long as they were employed on 19 March and notified to HMRC on an RTI submission on or before 19 March.

What if someone has resigned since 28 February or since 19 March – can we re-hire them?

Yes. The guidance confirms that this will be possible. This applies if they were on your payroll and notified to HMRC on an RTI submission on or before 28 February, and they have left since then. You can give those former employees the option of being rehired and then put straight on the scheme, and this applies even if they were not rehired until after 19 March. This is also possible for employees who resigned on or after 19 March, so long as they were employed on 19 March and notified to HMRC on an RTI submission on or before 19 March.

However, you are under no legal obligation to take anyone back. If you are considering re-hiring some workers but not others, there is a risk of claims, including discrimination claims. If you decide to re-hire any workers in order to put them onto the furlough scheme, we recommend that you take advice about the best way of doing this in order to reduce your exposure to risk.

If someone has resigned, but has not left yet, then it seems that you could allow them to rescind their notice (and this will be administratively easier than a re-hire) but you do not need to do so.

The guidance also confirms that if an employee has had multiple employers over the past year, has only worked for one of them at any one time, and is being furloughed by their current employer, their former employers should not re-employ them and put them on furlough.

What if we have inherited employees following a TUPE transfer after 28 February or after 19 March?

These employees can be furloughed, but it appears from the way in which the guidance and the Treasury Direction are drafted that the scheme only applies where there is a “business transfer” under TUPE and not where there is a “service provision change”.

The guidance says that a new employer is eligible to claim under the scheme for employees of a previous business who have transferred to them after 19 March, if either the TUPE or PAYE business succession rules apply to the change in ownership. The scheme can also be used if there has been a payroll consolidation after 19 March 2020.

What about casual workers and workers on zero-hours contracts?

The scheme will cover workers on the PAYE system, including any casual or zero-hours worker who are paid in that way.

What about workers on fixed-term contracts?

The updated guidance confirms that workers on fixed-term contracts can be furloughed. If the fixed term contract has not already expired, it can be extended or renewed and the worker can be furloughed – so long as an RTI payment was notified to HMRC on or before 19 March.

Workers on fixed term contracts which expired after 28 February or 19 March can also be re-employed and then put on furlough, if either:

  • their contract expired after 28 February 2020 and an RTI payment was notified to HMRC on or before 28 February, or
  • their contract expired after 19 March 2020 and an RTI payment was notified to HMRC on or before 19 March.

However, workers that started and ended the same contract between 28 February 2020 and 19 March 2020 do not qualify for the furlough scheme. 

What about other types of workers?

The grant can be claimed for the following types of workers, provided they are paid via PAYE and are not doing any work: office holders (including company directors); salaried members of limited liability partnerships (LLPs); “limb b” workers; and agency workers (including those employed by umbrella companies).

For directors and LLP members, furlough arrangements should be adopted formally as a decision of any relevant company or LLP.

What about sick workers?

The guidance says that employees who are currently off sick can be furloughed for business reasons. This applies to both short-term and long-term sick leave. The employee would then no longer receive sick pay and should be paid the same as other furloughed employees. However, the guidance also says that furlough is not intended for short-term absences from work due to sickness, and short-term illness or self-isolation should not be a consideration in deciding whether to furlough an employee.

The Treasury Direction is inconsistent with this. It says that an instruction which puts an employee who is receiving (or entitled to) SSP on furlough does not take effect until this SSP period is ended. This means that it remains unclear whether an employee who is eligible for SSP can be put on furlough.

If an employee becomes sick while on furlough, it is up to the employer to decide whether to move them onto SSP or to keep them on furlough. If the employee remains on furlough, the employer can continue to claim their salary through the furlough scheme. If the employee is moved onto SSP, the employer will have to pay this and can no longer claim their salary through the furlough scheme. However, employers with fewer than 250 employees can use the new Coronavirus Statutory Sick Pay Rebate Scheme which will repay up to two weeks’ SSP starting on or after 13 March 2020 for employees who are unable to work because they have coronavirus, cannot work because they are self-isolating at home or are shielding in line with public health guidance.

The guidance does not say anything further about the amount the employer can claim through the furlough scheme if it chooses to keep an employee on furlough rather than moving them onto SSP. But the Treasury Direction seems to add an additional complication. Paragraph 8.6 of the Treasury Direction says that no furlough claim may include “amounts of specified benefits payable or liable to be payable in respect of an employee (whether or not a claim to the relevant specified benefit is actually made) during the employee’s period of furlough and the gross amount of earnings falling for reimbursement … must be correspondingly reduced”. SSP is a “specified benefit”.

This seems to suggest that, even if the employee is not moved onto SSP, the furlough claim must be reduced by a notional amount to reflect the SSP that would have been paid. But there’s no obvious reason why the furlough grant should be reduced in this way and the guidance makes no mention of it.

It’s therefore quite possible that this is just a mistake in the drafting of the Treasury Direction and the government merely intended to stop an employer claiming both furlough grant and SSP for the same employee in the same period. In the circumstances, employers may be best advised to claim for the full furlough grant rather than reduce their claim by the notional amount of SSP. However, until the wording is clarified there is some risk that the SSP amount may not be recoverable and may need to be paid back in the future.  

If an employer has not agreed with their furloughed employees that they will receive a lower amount if they fall sick whilst furloughed, employers would have to continue to pay them whatever they agreed (even if this amount is not fully recoverable under the scheme).

The guidance clarifies the position on calculating furlough pay if an employee returns from sick leave after 19 March. This should be calculated against their normal salary, not the pay they received while on sick leave. If the employee is on variable pay, this should be calculated using either the same month’s earning from the previous year or average monthly earnings for the 2019-2020 tax year.

What about workers who are shielding or have caring responsibilities?

The guidance clearly says that employees who are unable to work because they have caring responsibilities or are shielding in line with public health guidance, or who need to stay home with someone who is shielding, can be furloughed. However, the position in relation furloughing employees who are shielding is less clear than the guidance suggests.

On 16 April 2020, new regulations extended the right to SSP to those who are shielding and who cannot work from home. Despite the position set out in the guidance, the Treasury Direction indicates that someone’s entitlement to SSP must have ended before they are put on furlough. Pending further clarification, the practical upshot seems to be as follows:

  • For employees who are shielding and had already been put on furlough before 16 April 2020, their furlough can continue (even though they are now potentially entitled to SSP).
  • Employees who are shielding but had not yet been put on furlough on 16 April are now entitled to SSP, so the Treasury Direction’s ban on starting furlough until entitlement to SSP has ended appears to apply to them.
  • Shielders who can work from home can, however, be put on furlough because they are not technically entitled to SSP.

What about employees on maternity or other family leave?

The guidance says that employers can claim for enhanced maternity pay through the furlough scheme. This suggests that employers can furlough employees on maternity leave.

If an employee on maternity leave agrees to be furloughed, then you will be able to reclaim their SMP in the normal way. You will then be able to claim for any enhanced contractual pay on top through the furlough scheme.

Currently, employers can reclaim 92% of SMP (or 103% if they qualify for Small Employers’ Relief). Employers cannot claim the 8% balance of SMP through the furlough scheme, because the Treasury Direction expressly excludes SMP (and other statutory payments for family related leave).

The same principles apply to other types of family leave.

From 25 April onwards, statutory pay for family leave (maternity leave, paternity leave, adoption leave, shared parental leave and parental bereavement leave) should be calculated based on the pay the employee would have received had they not been on furlough. This means that employees do not lose out if they are on a lower rate of furlough pay during the period for calculating statutory pay.

The guidance clarifies the position on calculating furlough pay if an employee returns from family leave. This should be calculated against their normal salary, not the pay they received while on leave. If the employee is on variable pay, this should be calculated using either the same month’s earning from the previous year or average monthly earnings for the 2019-2020 tax year.

What about employees on unpaid leave?

The position on this under the Treasury Direction and guidance is uncertain. It appears that if an employee started an unpaid sabbatical or other period of unpaid leave after 28 February 2020, they can be put on furlough instead and paid in accordance with the furlough scheme based on their regular wage. Employees who went on unpaid leave on or before 28 February cannot be put on furlough until the date on which it was agreed they would return from unpaid leave.

Another provision in the Treasury Direction is extremely unclear but may be intended to mean that no claim can be made under the scheme in respect of an employee’s period of unpaid leave beginning on or after 19 March 2020.

The updated guidance clarifies the position on calculating furlough pay if an employee returns from unpaid leave. This should be calculated using the amount the employee would have been paid if they were on paid leave.

Are foreign nationals with visas eligible for the furlough scheme?

Yes, the guidance says foreign nationals are eligible. They would presumably have to be working in the UK and paying UK PAYE. There are potential sponsor compliance issues to consider for Tier 2 workers, and while foreign nationals with limited leave are in most cases not entitled to receive public funds, accessing funds through the furlough scheme is not currently prohibited. The guidance confirms that grants under the scheme are not counted as “access to public funds”, and you can furlough employees on all categories of visa.

Are self-employed individuals eligible for the furlough scheme?

No. The government has announced a separate package of support for self-employed individuals affected by Coronavirus.

How do we put someone on furlough?

Do employees have to agree to being furloughed?

Yes – you need to agree this with each employee. The guidance says that employers should discuss this with their employees and make any changes to the employment contract by agreement. This does not necessarily require a protracted procedure. In our experience so far, most employees will be willing to accept furlough on basis that the other options are worse, and to ensure they still have a job to return to when the crisis is over.

Assuming the employee agrees be put on furlough, you will need to designate them as furloughed. The guidance says that, to be eligible for the grant, employers must confirm in writing to their employee that they have been furloughed. A record of this communication must be kept for five years.

The Treasury Direction says that the furlough needs to have been agreed in writing between employer and employee, although this includes by electronic means such as email. This goes further than the earlier guidance by requiring written agreement rather than just written confirmation and created concerns for employers who had not required furloughed employees to sign any kind of agreement or provide a written response. The guidance states that provided consent is obtained in a way that is consistent with employment law, it will be valid for the purposes of claiming under the scheme. This indicates that implied agreement will be sufficient - there needs to be a written record, but the employee does not need to provide a written response.

The latest guidance also confirms that a collective agreement reached between an employer and a trade union is acceptable for the purpose of a claim under the scheme.

Can employees put themselves on furlough?

No. You, as the employer, need to designate them as furloughed.

Pay during furlough

Will payments to employees on furlough be taxable?

Yes, payments you make to furloughed employees will be subject to PAYE and National Insurance contributions.

Will employees continue to accrue continuous service during furlough?

Yes, the underlying relationship will continue if a worker is furloughed, so their period of continuous employment will continue to accrue and will be recognised in full once the furlough comes to an end.

Do we have to top up the subsidy?

No. You can top up the subsidy if you wish, but you do not have to do so. It is open to you to agree with your employees that they will only receive the amount of the grant during furlough.

For employers that are topping up, a key question is how to maintain a fair differential between furloughed employees and any employees who are still working.

What if the subsidy is less than the minimum wage? Do we have to top it up then?

No. Workers are only entitled to the National Minimum Wage/National Living Wage for the hours they are working. You do not need to ensure that they are receiving NMW/NLW rates while on furlough. 

The position is different if you are asking workers to complete training – see below.

Holidays and furlough

Will workers continue to accrue holiday allowance while they are furloughed?

Yes, because they remain employed. You could agree to reduce any enhanced contractual holiday (beyond the statutory minimum of 5.6 weeks per year) to reflect the fact that an employee has been on furlough, but employees will retain their right to annual leave under the Working Time Regulations (WTR).

Can people ask or be required to take their holiday allowance while furloughed?

Yes. The guidance has finally confirmed our view that furloughed employees can be on holiday during furlough. This means that, if employees have pre-booked holidays then they will be able to take them, and you do not need to allow rescheduling unless they would ordinarily have a right to reschedule. If you would like to require employees to take holiday during furlough, you would need to give twice as much notice as the length of the holiday you want them to take (e.g. ten days’ notice for five days’ holiday) unless the contract says something else.

Can we restrict employees taking holiday?

The guidance states that employers can restrict leave being taken provided there is a business need. In fact, employers can generally prevent employees from taking holiday if they give the required amount of notice under the WTR (by giving notice of the same number of days as the holiday the employee wanted to take, e.g. five days’ notice to prevent or cancel five days of holiday). The new right to carry over holiday of up to four weeks into the next two holiday years may assist disgruntled employees who have not been permitted to take holiday during furlough due to the extra cost to the employer, although this only applies if the employee has not been able to take their statutory annual leave entitlement due to coronavirus.

What about bank holidays during furlough?

There are four bank holidays during the furlough scheme period (10 April, 13 April, 8 May and 25 May). If employees have the right to take bank holidays off as holidays, then this will apply during furlough unless you agree something else. If employees normally work on bank holidays, they will simply be on furlough leave (not holiday) on the bank holiday unless you require them to take a holiday.

What should we pay staff who take holiday during furlough?

The guidance says that staff need to be paid their usual holiday pay rate for statutory minimum holiday (5.6 weeks’). Employers will not be able to claim any additional top-up to full holiday pay through the furlough grant.

However, employers are still free to agree a different rate of pay for contractual holiday over and above the statutory minimum holiday entitlement of 5.6 weeks. In addition, many employers have asked employees who are still working (i.e. not furloughed) to take cuts in hours and pay, and in our view it could be open to employers in some circumstances to agree similar pay cuts with staff who are furloughed, particularly where colleagues in similar roles who remain at work have agreed to a pay cut, which could also impact on their holiday pay.

What can employees do and not do while on furlough?

Can employees do the odd bit of work for us while furloughed?

Definitely not. Employees cannot do anything that provides services to or makes money for an employer that has furloughed them, or for a linked or associated organisation. If they do any work for you or a linked/associated organisation, you may have to repay the grant.

We recommend drawing this to the attention of any furloughed employee who could otherwise be doing some work from home. It is important that they don’t do anything that could jeopardise your ability to claim the grant.

Can directors do statutory duties?

The guidance says that directors and owner-managers can be furloughed if on PAYE and will still be allowed to do statutory duties in these roles, so long as this no more work than reasonably necessary for that purpose. They must not generate commercial revenue or provide services to or on behalf of their company. Importantly, the Treasury Direction says only a limited range of duties are allowed – work done to fulfil a duty or obligation arising from an Act of Parliament, relating to the filing of company's accounts or provision of other information relating to the administration of the director's company.

Can we ask employees to do training while furloughed?

Yes. A furloughed employee can do training if this does not involve providing services or generating revenue for you or a linked or associated organisation. In fact, the guidance says that furloughed employees should be encouraged to undertake training.

Employees must be paid at least the National Living Wage/National Minimum Wage/Apprenticeship Minimum Wage (as increased on 1 April 2020) for 100% of the time spent training, even if this is more than the subsidy.

Can someone in the furlough scheme do work for other employers?

Yes, if this is allowed under their contract with you. 

This includes agency workers, but they must not do any work for, through or on behalf of the agency that has furloughed them while they are furloughed, including through or on behalf of the agency for the agency’s clients.

You should be able to impose restrictions on employees working elsewhere, but you should think carefully about whether you want to do so. You will obviously want to stop furloughed employees from working for a competitor, and there will be no need to say this explicitly because the employee’s underlying contract of employment will stay in place throughout the furlough. You might want to allow furloughed employees to take on extra work in, for example, the health and social care sector or essential services. However, the employee guidance helpfully points out that the employee needs to be able to return to work for you if you decide to recall them and must be able to undertake any training you require of them.

Can furloughed employees do volunteer work?

Yes, this is allowed (so long as it does not provide services to or generate revenue for the employer or a linked or associated organisation).

Bringing furlough to an end

How long can we keep workers on furlough?

The scheme was open for an initial period of three months (1 March to 31 May 2020) but was then extended to the end of June. It will be kept under review and may possibly be extended again. The minimum length of furlough is three weeks. 

Can we call employees back from furlough?

Employers are likely to want to reserve the right to call employees back from furlough if trading conditions improve. We recommend including this in your agreement with employees.

Can we give notice to an employee on furlough?

As the guidance for employees says that employees can be made redundant while on furlough, it seems that employees can be given notice (or paid in lieu) while furloughed, although the guidance does not explicitly say this.

Can we make employees redundant on furlough?

The employee guidance says that “your employer can still make you redundant while you’re on furlough or afterwards”. Neither the guidance for employers nor for employees explicitly says that collective or individual redundancy consultation can be carried out during furlough or whether that would count as work – although, on the basis that it is not making money for the employer or providing services, we would hope that a sensible approach would be taken.

The guidance is clear that the furlough grant cannot be used for redundancy pay.

What happens at the end of the furlough?

The idea is that employees will be able to come back to work. The scheme is designed so that employers don’t need to make redundancies and then recruit a new workforce once the crisis is over - their existing workforce will be ready and waiting to resume work.

However, if trading conditions have not improved sufficiently for you to take all the furloughed employees back when the scheme ends then you will be able to make them redundant, subject to the usual rules on redundancy.

This is significant because other European countries that have similar schemes in place are imposing restrictions on employers making redundancies. No such conditions are being imposed in the UK.

What happens if furlough ends after, for example, two weeks?

The guidance is silent as to what happens if a furlough period is shorter than the minimum period of three weeks, for example, if it ends after two weeks because the employee has been dismissed or resigns. We assume the employer can only claim for blocks of three weeks, as this is stated to be the minimum period, but this is not certain.

How will we claim the subsidy?

When will the scheme be ready?

The scheme is up and running as of Monday 20 April 2020, but of course applies to employees who were legitimately on furlough before that date.

What is the process for claiming the payment?

You will need to submit information to HMRC about workers who have been furloughed and their earnings, via the new online portal available from Monday 20 April. The application needs to be completed in one session (and there is currently no save and return option) so you should gather all the information needed to submit the claim before starting the application. This is set out in the step-by-step guidance for employers. To access the system, you will need a government Gateway ID and password and an active PAYE enrolment.

The latest guidance on how to claim says it is up to the employer to decide on the length of each claim period, based on the frequency of payroll.  Employers will need to make sure they include all of the employees they want to furlough for each claim period, because they will not be able to make another claim for the same period or one that overlaps with it.  It is not currently possible to amend a claim once submitted (although HMRC are looking at this).

You should receive payment under the scheme six working days after making the claim.  If you need short-term cash flow support in the meantime, the government has said you may be eligible for a Coronavirus Business Interruption Loan.

Is it a grant or a loan?

It will be a grant, not a loan, so it will not need to be repaid. Payments received by a business under the scheme must, however, be included as income in its calculation of taxable profits for Income Tax and Corporation Tax purposes - although businesses can continue to deduct employment costs as normal.

How does backdating work?

Claims can be backdated to 1 March 2020 where employees have already been furloughed. However, the grant is only available from when an employee has finished work and started furlough. 

Backdating could therefore apply to employees who were laid-off or sent home due to workplace closures prior to the announcement of the furlough scheme. The guidance is not clear on this point. The Treasury Direction says an employee is furloughed if they “have been instructed by the employer to cease all work in relation to their employment”, and this is due to circumstances arising from coronavirus. This indicates that the grant may be payable for employees who were sent home with no work to do before the scheme was announced.

Going to work in the UK? Tax refunds explained

If you're going to the UK to work it's important to know a few UK tax facts to make sure you don't end up losing your money.

When you start work in the UK you need to make sure you give your employer your National Insurance Number so you avoid paying emergency tax – which is much higher than the normal UK tax rates. Your National Insurance Number (NIN) is the unique number allocated to you by the Department for Work and Pension in the UK. It allows you to work, pay taxes and access public services in the UK.

PAYE and Self-employed tax

Once you start working you will need to pay UK tax either as a PAYE employee (if you're a receptionist, nurse or a teacher for example) or as self-employed person, such as a construction subcontractor.

If you are PAYE your employer should deduct tax from your earnings each time you get paid. If you are self-employed you are responsible for your own UK tax return called a self-assessment tax return. As a self-employed in the UK you can claim back work-related expenses such as work tools, transport and dry cleaning your work uniform.

If you've started work already in the UK you will be paying 20% income tax on earnings above £1830 and 40% on any earnings over £36,401.

Claim your UK taxes back

If you do end up on the wrong tax code and overpay tax in the UK, you can claim this money back once you leave the UK or when the tax year ends on April 5th. You have up to six years to claim any overpaid UK tax.

If you want to find out how much you could be owed, you can use a free online tax refund calculator. To claim your UK tax refund, you need to file a tax return. A tax return is the annual submission of tax forms documenting your earnings, taxes paid, deductable expenses and benefits that you send to the HM Revenue & Customs for review. From this information it is determined whether you have overpaid tax and are owed a tax refund.

The amount of your UK tax refund depends on factors like:

  • Your earnings
  • Your expenses
  • Whether you worked the whole tax year
  • If you had more than one job at a time or changed jobs
  • Whether you have children
  • If your circumstances changed, eg: you became self-employed
  • If you took a break during or between employments

When choosing a tax return company, we recommend that you select companies which:

  • Are HM Revenue & Customs registered agents
  • Have an office in the UK
  • Can guarantee that your tax refund will be 100% legal and safe

Cloud Accounting LLP

Cloud Accounting organises tax refunds for non-residents who work in the UK. We specialise in UK tax returns for PAYESelf-Employed and construction workers.

If you haven't set up your National Insurance Number yet, we can also help you with this.

Cloud Accounting customers get average UK tax refunds of £963 for PAYE and £1453 for construction workers' tax refunds.

How much Income Tax and National Insurance you should pay

As an employee, you pay Income Tax and National Insurance on your wages through the PAYE system. It’s important to check you have the right tax code and are paying the right amount.

  • Do you need to pay Income Tax and National Insurance?
  • How much can you earn before you need to pay Income Tax?
  • How much can you earn before you need to pay National Insurance?
  • What’s the difference between gross and net pay?
  • How is tax and National Insurance paid?
  • How PAYE works
  • What is a tax code?
  • What is an emergency tax code?
  • Tips and bonuses
  • Benefits in kind

Do you need to pay Income Tax and National Insurance?

You can earn a certain amount of income each year, called your Personal Allowance, before you need to pay any Income Tax.?

Got a question?

Our advisers will point you in the right direction.

Start a webchat online or call us on 0800 138 1677.

In general, not everyone may get the same Personal Allowance of £12,500 for the tax year 2019/20. A tax year runs from the 6th April to the 5th April.

The personal allowance is a fixed amount set against your gross income (your income before tax or any other deductions are taken) that allows you to receive that much income free of tax in a tax year.?

Received a loan from your employer?

This could be seen as tax avoidance and subject to a loan charge. HMRC have asked people who have been part of disguised remuneration schemes to come forward and provide information.

Further support is available on a dedicated HMRC helpline on 0300 0534 226.

However, you might get a smaller personal allowance if your income is over £100,000 or if you owe tax from a previous tax year. You might also get a larger Personal Allowance if you have overpaid tax from a previous tax year.

The Personal Allowance will also be set at £12,500 for 2020/21 and then indexed with the Consumer Price Index (CPI) from then onwards.Find out more about How Income Tax, National Insurance and the Personal Allowance work

How much can you earn before you need to pay Income Tax?

In the UK, the tax system is based on marginal tax rates. That means it’s worked out as a percentage of income you earn inside certain thresholds – you don’t pay the same amount of tax on everything you earn.

As an employee:

  • you pay 0% on earnings up to £12,500* for 2019-20
  • then you pay 20% on anything you earn between £12,501 and £50,000
  • you’ll pay 40% Income Tax on earnings between £50,001 to £150,000
  • if you earn £150,001 and over you pay 45% tax.

*This assumes you have the standard Personal Allowance of £12,500 which is the amount you can earn before paying tax. Your Personal Allowance might be higher, for example if you’ve claimed certain allowances or if you’ve paid too much tax. It could also be lower for example, if you earn over £100,000, the standard Personal Allowance of £12,500 is reduced by £1 for every £2 of income.

For example, if you earn £52,000 a year, you pay:

  • nothing on the first £12,500
  • 20% (£7,500.00) on the next £37,500
  • 40% (£800) on the next £2,000.

You can use GOV.uk’s tool to estimate how much Income Tax and National Insurance you should pay for the current tax year. It can help work out your take-home pay if you don’t have any other deductions, for example pension contributions or student loans.

If you’re self-employed, the self-employed ready reckoner tool can help you budget for your tax bill.

From 6 April 2019 income tax rates will be set by the Welsh Government. These are currently the same as for England and Northern Ireland for the 2019/20 tax year.If you live in Scotland, Income Tax rates are different. Find out more on our Scotland Income Tax and National Insurance page.

How much can you earn before you need to pay National Insurance?

National insurance contributions (NICs) are taken from your earned income and essentially help to build your entitlement to certain state benefits, such as the State Pension and Maternity Allowance.

If you’re an employee, you’ll need to pay Class 1 NICs on your earnings. In addition, your employer will be required to make a secondary contribution of 13.8% of earnings above £166 a week. There is no upper limit on employer’s National Insurance (NI) payments.

As an employee:

  • you pay National Insurance contributions if you earn more than £166 a week
  • you pay 12% of your earnings above this limit and up to £962 a week (for 2019-20)
  • the rate drops to 2% of your earnings over £962 a week.

For example, if you earn £1,000 a week, you pay:

  • nothing on the first £166
  • 12% (£95.52) on the next £796
  • 2% (£0.76) on the next £38.

If you live in Scotland, Income Tax rates are different. Find out more on our Scotland Income Tax and National Insurance page.

What’s the difference between gross and net pay?

Gross pay is the income you receive before any taxes and deductions have been taken out. Your annual gross pay is what’s often referred to as your annual salary.

Net pay is what’s left over after deductions like Income tax and National Insurance have been taken off. It’s what’s often referred to as your take home pay.

You can see what your gross pay was and how much has been taken off (if anything) on your payslip.

How is tax and National Insurance paid?

If your income is more than your Personal Allowance in a year, you have to pay tax.

In general, your Personal Allowance is spread evenly across your pay packets for the year and your employer will take out tax before giving you your pay.

They know how much to take out through a system called PAYE (Pay As You Earn). If it turns out at the end of the year you have paid too much tax, you can get a refund; too little and you will have to pay extra.

Your employer will also make National Insurance deductions from your pay.

This is worked out on a weekly or monthly basis, or however frequently you get paid. Unless there has been a mistake, you cannot get back any of the National Insurance you pay, even if your earnings fall later in the year.

How PAYE works

When you start work, you’ll either need to hand in a P45 form from your last job, or complete HMRC’s new starter checklist, which you get from your employer.

These forms both tell HM Revenue & Customs (HMRC) you’ve started work and will be used to create a tax code.

Your tax code then tells your employer how much tax to take off your pay. The P46 form is no longer used.

PAYE might be used to collect tax not just on your earnings from this job but also on other income you have.

What is a tax code?

The amount of tax you pay depends on:

  • how much income you have
  • how much tax you’ve already paid in the year
  • your Personal Allowance.

Different people have different tax codes, depending on their circumstances.

Every year, HMRC sends out a Coding Notice telling you what your tax code is and how much tax you’ve paid.

You can also find your tax code on your payslip. It’s usually made up of a few numbers and a letter.

How is my tax code worked out?

Your tax code is normally the amount you can earn without paying tax, divided by 10, with a letter added.

For example:

Tax code: 1250L

1250 becomes £12,500 earned before tax.

My tax code starts with BR

You are not getting your tax-free basic personal allowance which means all your income is being taxed at the basic rate of 20%.

This can occur if your employer doesn’t have all the information it needs to work out your tax code.

It doesn’t always mean you’re paying the wrong amount of tax. For example, you may have two jobs and HRMC has allocated your personal allowance against one of these.

My tax code has no number, or starts with D followed by a number

This is usually because you have more than one source of income.

Your Personal Allowance is used up on your main income source, and you pay tax on everything you earn from your second income source.

For example, you might work a main job during the day and do shifts in a pub or work in a factory in the evenings.

If you earn more than £12,500 a year in your main job, your second job will be taxed at the basic rate. This can also apply to pensions or money paid out by investments (dividends).

My tax code starts with K

This means you have tax from the past you still need to pay, or you get money or benefits that can’t be taxed before you receive it, like a State Pension or company car.

From this, your employer can work out how much should be paid towards what you owe.

The amount you pay will never be more than half the amount you’ve earned or received during the pay period (whether that’s monthly, weekly or another period).

What is an emergency tax code?

Sometimes your tax code isn’t right for your circumstances and you might be given an emergency code.

An emergency tax code assumes that you’re only entitled to the basic personal allowance. It’ll mean you’ll pay tax on all your income above the basic personal allowance (£12,500 for 2019-20).

It won’t take into account any allowances or reductions and reliefs you might be entitled to.

This could mean you pay more tax than you should be for a short period of time.

For 2019-20, the emergency tax codes are:

  • 1250L W1
  • 1250L M1
  • 1250L X.

You may be put on an emergency tax code if you’ve started a new job, started working for an employer after being self-employed or are getting company benefits or the State Pension.

If your tax code is one of these, HMRC will automatically update it, but it might mean that for one or two months your pay won’t be the same, so be careful with your budgeting.

How do I check my tax code?

To make sure you’re on the right tax code, check your code matches the Personal Allowance you should be getting.You can check your Income Tax for the current year by using the GOV.UK service.

What do I do if I think my tax code is wrong?

If you think your tax code is wrong, or if you’re in any doubt, contact HMRC.

It’s important you give HMRC all the information they ask for so you don’t end up on the wrong tax code and pay too much or too little tax.Contact HMRC to sort out a tax problem.

If you think you’ve paid too much tax

It’s worth checking how much tax you’ve paid on your wages.If you think you’ve overpaid tax, you can check if you’re due a refund on the GOV.UK website or use the HMRC online tax checker.

Depending on your circumstances, you might be able to ask for a refund using a form, or you might need to contact HMRC directly.Contact HMRC to ask for a tax rebate.

If you think you haven’t paid enough tax

If you think you’ve underpaid tax, then you might have to complete a tax return.

If this is the case, normal self-assessment time limits apply.

To pay an amount up to £3,000 through an adjustment to your tax code for the following year, you should file a return by 31 December following the end of tax year.

Otherwise, tax still due for the last tax year must be paid by 31 January following the end of the tax year in which the income arose.

If you think you haven’t paid enough tax, contact HMRC.

You might be asked to complete a tax return. Be aware if you don’t do this, you will normally have to pay penalties and interest once the underpayment does come to light.Contact HMRC to sort out a tax underpayment.

Tips and bonuses

If you get money through your job that’s not part of your usual wages, like an annual bonus or tips from customers, you’ll have to pay tax on it, and usually National Insurance too.

  • Your annual bonus, if you get one, is treated as if it’s part of your normal wages. You’ll pay tax and National Insurance on it through PAYE, in the usual way.
  • If you get cash tips direct from customers or through a ‘tronc’ system (where tips are pooled and shared between staff members of the pool), you also need to pay tax on them, but not National Insurance, provided the amount you get in tips does not involve your employer. It’s your responsibility to tell HMRC about these tips. They will then give you a new tax code estimating how much you get in tips each pay period, and taxes you on that amount. Find out more about troncs from HMRC (PDF)opens in new window.
  • If a customer gives you a tip via their bank card when paying for a meal or service, and your employer decides whether to share it with you, they are responsible for sorting out the tax and National Insurance. If the employer passes such payments to a tronc, then the rules above apply and no National Insurance is due.
  • A service charge is not the same thing as a tip, because the customer doesn’t choose to pay it. A tip is a payment that’s given freely.

Benefits in kind

Sometimes your employer will offer benefits like a company car or health insurance as part of your remuneration package.

These are known as ‘benefits in kind’.

You might need to pay tax on the value of these benefits.

  • Some benefits are always tax-free, such as employer contributions into a pension scheme for you, or childcare vouchers up to a limit.
  • Some benefits are always taxable. For example, goods that your employer lets you have for free or below cost price.
  • For some benefits it depends. For example, season-ticket loans are taxable if the value of all employer loans you get is more than £10,000 for the year.

Changes to off-payroll working (IR35) rules effective from April 2020

The government has reaffirmed plans to make changes to off-payroll working (IR35) rules effective from 6th April 2020. This will affect any contractors working through a Personal Service Company, Recruitment Agencies, and all Large and Medium-sized end clients.

On 11th July 2019, the government published the draft legislation necessary to enact the Finance Bill 2019-20. Among other tax measures, the Finance Bill introduces important changes for workers providing services through an intermediary in the private sector (also known as ‘off-payroll working’ or ‘IR35’).

The final contents of the Finance Bill will be confirmed by the Chancellor of the Exchequer as part of the government’s 2019 Budget. The off-payroll working changes are due to take effect from 6th April 2020 and are summarised in the sections below.

Summary of changes to IR35 due to be implemented in 6th April 2020:

There are a number of changes due to be implemented in April 2020, these will have impacts on end-clients, recruiters, and contractors working through limited companies. We’ve summarised the main changes and impacts below.

The end-client is now responsible for determining whether a contract is inside or outside of IR35 rules

The changes for the private sector mean the end-client is now responsible for determining the IR35 status of a contract with a Personal Service Company (PSC). The rules will be consistent with the changes brought in for the public sector in April 2017.

Small business exemption to new IR35 rules

The legislation applies only to ‘medium or large’ businesses. There’s an exemption for end-clients who are ‘small businesses’ as defined by the Companies Act 2006 which means meeting two or more of the following criteria:

  • Annual turnover is no more than £10.2 million
  • Balance sheet total is no more than £5.1 million
  • No more than 50 employees.

Where the end-client meets two or more of these criteria, responsibility for determining the IR35 status of a contract remains with the PSC and the changes do not apply.

The government has included clauses in the legislation to ensure medium or large businesses do not set-up arm’s length companies or subsidiaries to procure services from PSCs. The legislation will apply to the parent company based on the aggregate amount of turnover and the aggregate amount of the balance sheet total of the connected entities.

There’s no small business exemption for public sector organisations and the legislation will apply to all end-clients engaging PSC workers in the public sector.

IR35 Status Determination Statement (SDS)

The end-client must confirm the IR35 status of a contract by providing a ‘Status Determination Statement’ (SDS). The SDS must be provided in writing to the PSC worker and, if an Agency is involved in the labour supply chain, a copy must be provided to the Agency responsible for paying the PSC.

These arrangements place most of the responsibility for administering an SDS on the end-client and/or the fee payer (if an Agency is involved).

IR35 status dispute resolution process is led by the end-client

It’s the responsibility of the end-client to establish arrangements to consider any disputes from PSCs about the SDS. The legislation does not specify how such arrangements should work in practice but does state a time limit of 45 days to respond, in writing, to the PSC with the outcome of the review of the dispute.

The decision must either confirm the original SDS is upheld, or, if it involves a revised SDS or conclusion, a new SDS must be provided in line with the arrangements outlined above.

Transfer of employment tax liabilities to another relevant person

The legislation is designed to ensure the organisation with responsibility for issuing the SDS, or the fee-payer if an Agency is involved, is responsible for any employment tax liabilities arising.

The legislation also allows HMRC to recover tax liabilities from another ‘relevant person’. A relevant person is any party involved in the payment to a PSC. This means HMRC can recover tax from the highest party in the labour supply chain which is not complying with the legislation. HMRC believes this will ensure compliance with the rules across all parties involved in the labour supply chain.

5% administration allowance withdrawn (mostly)

As expected, the draft legislation removes the 5% allowance for PSCs to meet the costs of administering the off-payroll working rules. The allowance will continue for PSCs working with ‘small’ end-clients as defined above.

Check of Employment Status Tool (CEST)

The government recognises the Check of Employment Status Tool (CEST) needs to be strengthened. It’s expected that a further announcement will be made when further guidance and support for businesses is published throughout 2019.

Conclusion – The new IR35 rules will cause issues

Cloud Accounting NI responded to the government’s consultation earlier in the year. It’s disappointing that most of the issues raised by us, and other responders, have been largely ignored in the draft legislation. Of particular concern remains the:

  • errors and inconsistencies contained in the government’s online Check of Employment Status Tool (CEST)
  • additional investment required to complete an employment status determination by an end-client on a contract by contract basis
  • removal of the 5% allowance for PSCs to administer off-payroll working rules
  • risks to PSCs from the dispute resolution process which are the responsibility of the end-client to administer.

IR35 – 10 INDICATORS TO SHOW YOU’RE NOT A DISGUISED EMPLOYEE

The IR35 'off-payroll' rules will be extended to the private sector from April 2020 onwards, directly affecting a large number of contractors.

Therefore there has never been a more important time to review your business for IR35 and take action if it is affected.

As a Limited Company Contractor or Sole Trader, IR35 is an important consideration for you as it sets out the law relating to tax treatment of your income and also determines your tax position with HMRC. Contractors that fall outside IR35 legislation are entitled to receive payment in the form of dividends. Those who fall inside IR35 are seen as a disguised employee and are only entitled to receive payment on a PAYE basis (albeit through their Limited Company).

Therefore, being caught by IR35 does not prevent you from working through your company, it just means that you need to tax yourself differently with the assignment which is within IR35.

In order to determine if an individual is likely to be caught by IR35, the following series of questions provide a clearer picture as to whether a worker is deemed to be an employee or self-employed. If the majority of answers to the following questions is ‘Yes’, the more likely an individual is to fall inside IR35 and therefore a ‘disguised employee’ of the end client:

  • Do you have to do the work yourselves?
  • Can someone tell you at any time what to do, where to carry out the work or when and how to do the work?
  • Do you have to work a set amount of hours?
  • Can someone move you from task to task?
  • Do you receive overtime pay or bonus payment?

It is important to reiterate that these questions do not set an individual’s IR35 status in stone but do provide a clearer picture with HMRC as to how an individual works. Cloud Accounting LLP offers unlimited IR35 checks when working through a limited company to make sure you operate compliantly.

If you answered yes to one or more questions, please contact us to see how switching to Cloud Accounting LLP can help you with how to avoid IR35.

Speak to Richard Cloud Accounting LLP

THE FOLLOWING TIPS WILL HELP DEMONSTRATE YOU’RE NOT A DISGUISED EMPLOYEE ONSITE AND CAUGHT BY IR35.

1. ENSURE YOUR CONTRACTS ARE ACCURATE AND CONSISTENT

It makes little sense having a contract that states that you will be subject to the control of the client, or that the client’s processes and procedures will apply to you when they don’t in practice. Also, make sure that the contract between the agency and the client does not contain anything that contradicts your contract with your agency.

2. MAKE SURE YOUR CLIENT THINKS THE SAME WAY YOU DO

If your client sees you as an extension of its own workforce, the company is more likely to treat you as an employee. Make sure they know that you are contracted for a specific reason and that they treat you as independent of their organisation throughout your assignment.

3.ENSURE THAT THE CLIENT’S REPRESENTATIVE VIEWS YOU AS AN INDEPENDENT CONSULTANT

This is particularly important where your client representative (i.e. The person who would liaise with HMRC in the event of an IR35 enquiry) is different from the individual who hired your services or worked with you day to day at the outset of the project. If necessary, provide a copy of your contract to the client representative or even a “statement of understanding” which sets out how you intend to work/be treated whilst on an assignment with the client to avoid any misunderstandings.

4.DEMONSTRATE THAT YOU ARE TREATED DIFFERENTLY FROM YOUR CLIENT’S EMPLOYEES

Genuine employees will have certain set working conditions, such as minimum hours, pension arrangements and other benefits, and perhaps subsidised services too. The employer also has a duty to provide work for them, which the employee has an obligation to do – and the employer can stipulate where and how the work is to be carried out. You should be able to show that little if any of this applies to you.

Different pay and benefits will not be enough on their own. Flexible working, assignments for other clients, bring your own equipment, working on a specific package of work for a fixed fee and/or a fixed period are all good ways of showing that you are truly independent.

5. WORKING AS PART OF A TEAM DOES NOT AUTOMATICALLY RENDER YOU A DISGUISED EMPLOYEE OF THE CLIENT

It is essential, however, that you agree to the scope of the work you undertake at the outset of the assignment. Being continually allocated further work by the client, particularly without putting in place additional contracts, could show that you are being treated as an employee. If further work comes up, make sure you put a contract in place before you start working on it.

6. PROVIDE A SUBSTITUTE

Not only does providing a substitute give unequivocal evidence that you are not obliged to offer a personal service, and therefore cannot be a disguised employee, it can also enable you to profit further from the assignment by supplying cheaper labour to perform the services on your behalf. It could also give you the flexibility to work on another contract with a different client.

Having a substitute ready to engage on a project is a strong signal you are running a business. These "employees" can be set up on a zero hours contract. You may want to have arrangements to join a group of fellow experts in your industry niche and make reciprocal zero hours contract arrangements to step into each others project in when necessary - eg if you took ill health, during holidays etc.

7. PROJECT-BASED ASSIGNMENTS ARE SIGNIFICANTLY BETTER THAN PERIOD BASED ONES

Being engaged on a specific project enables you to quote a fixed fee and work flexibly as long as deadlines and project completion dates are met. Being engaged on an ongoing basis may suggest you are only there until the client recruits a permanent employee to do your job. This may indicate that the company is treating you as if you were that individual until someone permanent comes along which can potentially make you a disguised employee.

8. MANAGE YOUR OWN ASSIGNMENTS

As an independent contractor, you should determine the hours required to complete the work. It is important that you take control over managing your assignments and don’t rely on being allocated work. This should also enable you to quote a fixed fee for the project and/or undertake work for other customers alongside your assignments.

9. CALLING YOURSELF A CONTRACTOR AND NOT RECEIVING HOLIDAY OR SICK PAY IS NOT ENOUGH TO PROVE THAT YOU ARE NOT AN EMPLOYEE OF THE CLIENT

Your working practices and other terms of the contract must indicate that you are self-employed. This could involve you showing that you have financial risk in terms of bad debts, rectifying work at your own cost and investing in your company, all good ‘badges of trade’.

10. WORKING FOR MULTIPLE CLIENTS AND INVESTING IN YOUR OWN COMPANY IS A GOOD WAY OF DEMONSTRATING THAT YOU ARE IN BUSINESS OF YOUR OWN ACCOUNT

The more clients you work for, the easier it is to demonstrate that you are self-employed, whereas only having one client as your sole source of income for a lengthy period of time may suggest that you are employed by the end client. To counteract this, pay for your own training and provide as much of your own equipment as possible and pay for them through your business to ensure they are properly accounted for.

HERE ARE SOME PRACTICAL CONSIDERATIONS:

1. Keep client correspondence

If you have emails that clearly state you are not under the control of a manager at the business, but are simply contracted to provide a service, this can be useful too.

2. Don’t name your company after yourself

HMRC knows that a company named after a person may well be just that person, and this fits their profile of a PSC. But if your company has a more ‘business-like’ name, e.g. XYZ Design, it emphasises the fact that your company is distinct from you, and that you could delegate the work to another person if necessary. Employees cannot delegate in this way, so it marks you out as different.

3. Have your own marketing materials

You should be able to demonstrate that you market your contracting services actively. Have a listing on relevant services website, post adverts and print business cards, all of which help to indicate that you are in business on your own account. Never use a business card which includes your client’s branding!

4. Maintain your own office

A well-equipped office, even just in your own home, will strongly imply that your work activities extend well beyond your current client. If you also invest in your own software licences, trade literature and professional memberships, this can help a great deal too.

6. Take out your own business insurance

Having your own business insurance, such as professional indemnity insurance, is a great way of demonstrating that you’re not just an employee.

7. Invest in your professional development

Employees don’t pay for their own training, so if you pay for yours this will be another useful point of difference. Some professions may require you to take continued professional development (CPD) to remain qualified, so by paying for this you’re also reasserting your contractor status.

8. Try to have multiple clients at the same time

It’s not always possible to arrange, but if your time is split fairly evenly between two or more main clients, it’s much harder for HMRC to claim you’re an employee of any of them. However, having a very uneven split (e.g. 90 per cent of your income deriving from one client) may be less convincing.

The more of these strands of evidence you can call upon, the more likely it is that HMRC will accept you are in business on your own account. Having just one or two on their own may not be enough.

FIND OUT HOW MUCH YOU MIGHT OWE

Get in touch with us and we can help you calculate how much you might owe if you fall within IR35.

Potentially being classed as a disguised employee can seem like a confusing scenario but it doesn’t have to be.

Over the last 10 years, Cloud Accounting LLP have helped many contractors, freelancers and self-employed professionals, just like you to save time, money and hassle with our comprehensive range of accountancy, financial, legal, insurance and business services.

Cloud Accounting LLP can help you with the responsibility for determining if IR35 applies and assist you with any concerns you may have about potentially disguised employment. Please get in touch to find out more about how we can help you.

CLOUD ACCOUNTING LLP

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+44 2895 219365


LONDON ADDRESS
New Broad Street House
35 New Broad Street
London EC2M 1NH
+44 207 971 1002

Name: Cloud Accounting LLP
Email address: richard@cloudaccountingni.com
Phone: +447868663538