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COVID-19 Job Retention Scheme: Advice for Company Directors

Coronavirus (COVID-19) Job Retention Scheme – Advice for Company Directors

The critera to qualify for the COVID-19 Job Retention Scheme (essentially funding 80% of salaries), is without doubt, stricter and less generous in the case of small company directors. Below I’ll discuss what can be claimed by this group of employees. The full guidance is the same as that for the non-director employees and is found here: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

Job Retention Scheme: How it applies to company directors

  • Directors can be furloughed if they’re an employee on PAYE and on the payroll on 28 February 2020
  • The same restrictions to furloughing apply both to directors and employees. See here for the full list but of particular difficulty for directors is the requirement to perform no work whilst furloughed.
  • In practice, a company may be so badly affected by the crisis that it goes into a ‘COVID-19 hibernation’ meaning that the director would have no day to day employment type duties (especially, income generating activity) but is still on hand to undertake their statutory duties as company director.
  • Other companies might only be partially affected. In such cases, it might be practical to furlough all but one of the directors. This may especially apply to small husband and wife ran companies.

How much is the grant worth to directors?

  • Employers can choose to pay a furlough salary of 80-100% but the government is funding only up to 80% (capped at £2,500). In the case of directors it’s likely that the company will want to continue to pay 100% of the current salary in the knowledge that 80% will be funded by HMRC later.
  • Directors salaries are usually set quite low with the remainder of their remuneration being paid via dividends. Unfortunately HMRC will not be funding anything towards dividends.
  • Presuming therefore that you earn a typical directors salary (often below all tax and NI deductions) of £719 per month. HMRC will fund approx £575 per month.
  • The grant will be received by the company as taxable income and cannot be expected to hit the company before late-June 2020 or later.

Practical tips

  • There’s no need to worry or rush to take action. If work has ground to a halt you will qualify for this scheme. Just apply the rules are best as you can formalise the arrangement later using our template letter to furlough.
  • As for claiming the grant – please don’t contact HMRC. They’re of course extremely busy and are in the process of contacting employers.

My previous COVID-19 posts remain relevant and are:

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COVID-19 Job Retention Scheme (detailed guidance for employers)

Coronavirus (COVID-19) Job Retention Scheme – detailed guidance now available

Many employers are now considering their need to furlough employees perhaps from the next pay period starting 1 April. Thankfully updated and more detailed guidance on the Job Retention Scheme has now been released.

My summary of the scheme is below and I will personally help each affected client navigate their own particular circumstances. The full guidance is found here: https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

Job Retention Scheme Summary

  • Grant is available to all employers that had employees on the payroll on 28 February 2020.
  • All employees can be included (full-time, part-time, agency, zero-hours) if they’re being furloughed because of the COVID-19 crisis.
  • Employees cannot work whilst furloughed. Employees put on reduced hours do not qualify.
  • You must have your employees agreement to designate them as furloughed. Of course put this in writing once discussed.
  • The scheme is running from 1 March 2020 for at least 3 months. The minimum period for which you can furlough an employee is 3 weeks.
  • Employers can choose to pay a furlough salary of 80-100% but the government is funding only up to 80% (capped at £2,500). Most employers are best advised to pay the 80%.
  • If 80% of an employee’s salary equates to less than National Minimum Wage (NMW) then that’s fine under the circumstances because the employee is not actually working the hours.
  • A furloughed employee may volunteer to perform work which does not generate income for the business (e.g. bookkeeping, admin type tasks) and can undertake training courses whilst furloughed.
  • Once agreed the payroll runs as normal, with usual tax, NI and pension deductions.
  • An employee who already has two or more jobs can be furloughed by one employer and continue to work for another.
  • If your employee is already sick or self-isolating and in receipt of Statutory Sick Pay (SSP) this must run its course before they can be furloughed.

How do employers calculate the 80%?

Fixed salary employees – simply pay 80% of the fixed salary that was paid for 28 February.

Employees whose pay varies –
For those that have been employed for a full year, take the higher of:

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

Fees, commission and bonuses should not be included in the calculation.

For those that have been employed for less than a year – use the average monthly earnings since they started work.

HMRC will also be funding the any Employer National Insurance Contributions and automatic enrolment contributions up to the minimum 3% contribution rate.

Effectively a furloughed employee paid at 80% will cost the employer nothing.

What to do now?

For many employers the best decision will be to furlough all but a skeleton staff. Discuss this with your employees now, decide when to start their period of furlough. Agree with them for how long (a minimum of 3 weeks) but you may like to do one month and reviewed monthly (up to a maximum 3 months unless extended by the government) and at what rate they’ll be paid 80-100%. Finally, and importantly, write to them to confirm. Our letter template can be downloaded Job Retention Scheme – Letter to employees.

As for claiming the grant – please don’t contact HMRC. They’re of course extremely busy and are in the process of contacting employers.

You may well experience a delay between paying your employee and receiving this grant. The claim system is expected to be working by the end of April. Plan you cash flow accordingly and consider using the Business Loan Interruption Scheme (interest free loans – just contact your bank).

What about small company directors?

UPDATE 1 Apr 2020: See my post: COVID-19 Job Retention Scheme – Advice for Company Directors

During the crisis I’ll be blogging about government help for small businesses as soon as the guidance is available. My previous COVID-19 post remain relevant and are:

What financial support is available for UK businesses? – NOW UPDATED
Can the Self-Employed go to work?
Help for the Self-Employed and other FAQ’s
Coronavirus (COVID-19): Help for the Self-Employed – PER THE 26 MARCH ANNOUNCEMENT

Enjoy saving tax? 

We have two videos to help on our YouTube-logo-full_color channel; and for regular tax-tips follow our blog on  or click +Follow at the bottom of this page.


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Coronavirus (COVID-19): What financial support is available for UK businesses?

Coronavirus (COVID-19): What financial support is available for small UK businesses?

Following is what we know so far. Clients will be updated as soon as possible on specific rules regarding eligibility and how to make claims once that info is available.

Coronavirus Job Retention Scheme

All UK employers will be given support in paying 80% of employees salaries up to £2,500 per month (for at least 3 months from 1 March 2020) for those employees that would otherwise have been laid off during, and only due to, the Coronavirus crisis.

How to claim – HMRC are working urgently to set-up a system but for now we know that you need to designate employees are “furloughed workers”, notify your employees and submit those details to HMRC (method of submission yet to be announced).

VAT payments

VAT payments falling due between 20 March – 30 June 2020 simply do not need to be made on time. This applies to all businesses but it’s deferment only. Any deferred payments will need to be caught-up by 31 March 2021 if not earlier. In the meantime VAT Returns must still be submitted on time. VAT Refunds will be processed as normal.

UPDATED INFO: HMRC ask that businesses please cancel their direct debits with their bank with the intention of setting these back-up again when you cash-flow allows you to make payments.

Self-Assessment payments for the Self-Employed

The usual payment on account due by 31 July 2020 does not need to be paid until 31 January 2021. This deferment will not attract penalties or interest. No application to defer is needed.

UPDATED INFO: Deferral of the July payment on account now applies to all taxpayers under Self-Assessment. There is no need to contact HMRC to arrange this.

HMRC will fund Statutory Sick Pay (SSP) for employees absent due to Coronavirus

Until now employers themselves have funded the £95.85 per week SSP paid to employees during sickness absence. However, starting 13 March 2020 HMRC will fund employers up to two weeks SSP per eligible employee (including directors of small limited companies) who is absent because of COVID-19 (infected, self-isolating etc). During the crisis SSP is payable from day 1 of absence rather than the usual day 4. Eligible employees are those earning at least £120 per week. The HMRC mechanism for repayment is being designed and yet to be announced.

Self-employed not eligible for SSP

The Self-Employed will qualify for Employment Support Allowance of around £73 per week from day 1 of COVID-19 related sickness (extended from the usual day 8). If already claiming Universal Credit then claims are to be made via that system.

Business Rates

Automatic business rates holiday for retail, hospitality and leisure industry for 2020/21. Local Authority will write to confirm – no action needed.

Automatic cash grants for retail, hospitality and leisure industry trading from business properties of up to £25,000 or £10,000 for properties with a rateable value under £15,000 (including those paying no business rates because of Small Business Rate Relief). Local Authorities are writing to affected businesses. No action or application is needed.

UPDATED INFO: The list of businesses to qualify for the grants is expanding. Of note, Estate Agents and Childcare Nurseries recently added.

Business Interruption Loan Scheme

The Government will be guaranteeing loans with interest free periods. Applications for loans can be made via your existing bank from 23 March 2020.

Insurance

Unfortunately, most businesses are not specifically not insured for closure due to pandemics or government-ordered shut-downs. But, check your policy – if you are then insurers are reportedly dealing fairly with such claims.

In conclusion

Sorry if the info presented doesn’t answer your specific question but updates will follows as and when the rules are clarified and especially as we receive instructions on making claims for the help on offer.

Enjoy saving tax?

We have two videos to help on our YouTube-logo-full_color channel; and for regular tax-tips follow our blog on  or click +Follow at the bottom of this page.


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Optimum Directors’ Salary and Dividends for 2020/21

What is the optimum directors’ salary and dividend mix for 2020/21?

Small companies will usually pay their directors with a mix of salary and dividends. The level of the directors’ salary is usually set in order to avoid any income tax and national insurance. On this basis the recommended remuneration package for the forthcoming tax year is:

Upper limits (if intention is to fully utilise the basic rate tax band)


2020/21


2019/20

Directors’ salary – per annum

£8,788

£8,632

Dividends – per annum

£41,212

£41,368

It should be noted that dividends exceeding both the personal allowance and the dividend allowance of £2,000 will be taxed via the directors’ personal income tax return at 7.5%. Meaning that if dividends are paid all the way up to the basic rate band of £50,000 (same as last year) there will be a personal tax bill of £2,663 (last year £2,663)

Companies with more than just a single director on the payroll may benefit from the Employment Allowance which reduces the company’s Class 1 National Insurance contributions (Employer’s N.I.) by up to £4,000.

In such cases there may be an opportunity for directors to eke out a little more tax savings by paying themselves a salary of £12,500 and dividends up to a maximum of £37,500 (the overall tax saving between the director and the company being around £260).

This second option will not be the best fit for everyone. More than ever, personal circumstances must be carefully considered to give the best results.

Each client of ours will be receiving a personalised recommendation shortly.

Enjoy saving tax?

We have two videos to help on our YouTube-logo-full_color channel; and for regular tax-tips follow our blog on  or click +Follow at the bottom of this page.


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National Minimum Wage rise from April 2020

National Minimum Wages rates

National Living Wage (NLW) rates (for those over 25 years old) and National Minimum Wage (NMW) rates (for those under 25 years old) will rise from 1 April 2020.

The NLW increase of 51p represents a 6% rise, equivalent to an annual increase of around £930 for a full-time worker.

In summary and effective 1 April 2020 the follow minimum wage rates will apply

Year 25 and over 21 to 24 18 to 20 Under 18 Apprentice *
April 2019 £8.21 £7.70 £6.15 £4.35 £3.90
April 2020 (new rates) £8.72 £8.20 £6.45 £4.55 £4.15

* The apprentice rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the National Minimum Wage for their age.

Plan ahead

Ensure your payroll procedures are up to date and consider notifying staff ahead of time in writing (even via a note on their payslip). This transparency is likely to be well received and could help build positive employee relations. It also offers an opportunity to explain that any overtime worked during a pay reference period prior to the introduction of the new rates, that is payable after these have been introduced, will still be paid at the previous rate.  For further details and more rates visit gov.uk

Pension contribution rates

If you employ staff and run a pension scheme the minimum contributions rates remain the same with no more planned increases:

  • Employer minimum pension contribution 3%, staff contribution 5%.

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National Minimum Wage & Pensions rise from April 2019

From 1 April 2019 the minimum hourly pay rates along with the minimum contributions for auto-enrolment pensions will increase affecting both employees and employers.

First let’s look at the National Minimum Wages rates:

National Living Wage (NLW) rates (for those over 25 years old) and National Minimum Wage (NMW) rates (for those under 25 years old) will rise from 1 April 2019.

The NLW increase of 38p represents a 4.8% rise, equivalent to an annual increase of about £700 for a full-time worker.

In summary and effective 1 April 2019 the follow minimum wage rates will apply

Year 25 and over 21 to 24 18 to 20 Under 18 Apprentice *
April 2018 £7.83 £7.38 £5.90 £4.20 £3.70
April 2019 (new rates) £8.21 £7.70 £6.15 £4.35 £3.90

* The apprentice rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the National Minimum Wage for their age.

The Government has previously said it plans to raise the national living wage to at least £9 per hour by 2020.

Ensure your payroll procedures are up to date. For further details and more rates visit gov.uk

 

Pension contribution rates increase from April 2019

If you employ staff and run a pension scheme the minimum contributions rates are increasing from April 2019. This has long been the intention of The Pension Regulator (TPR) and is the last increase of “phasing”. The increases are as follows:

  • Employer minimum pension contribution 3% (from 2%), staff contribution 5% (from 3%).

If we provide your payroll services then we will of course implement the increased rates on your behalf but because this represents an increased cost for both employer and employee we highly recommend that you let your staff know in advance of this change. To do so you may like to use this TPR letter template.

Source info and more detail: http://www.thepensionsregulator.gov.uk/en/employers/phasing-increase-of-automatic-enrolment-contribution

 

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Optimum Directors’ Salary and Dividends for 2019/20

What is the optimum directors’ salary and dividend mix for 2019/20?

Small companies will usually pay their directors with a mix of salary and dividends. The level of the directors’ salary is usually set in order to avoid any income tax and national insurance. On this basis the recommended remuneration package for the forthcoming tax year is:

 

Upper limits (if intention is to fully utilise the basic rate tax band)


2019/20


2018/19

Directors’ salary – per annum

£8,632

£8,424

Dividends – per annum

£41,368

£37,926

It should be noted that dividends exceeding both the personal allowance and the dividend allowance of £2,000 will be taxed via the directors’ personal income tax return at 7.5%. Meaning that if dividends are paid all the way up to the basic rate band of £50,000 (2018/19 was £46,350) there will be a personal tax bill of £2,952 (last year £2,438)

Companies with more than just a single director on the payroll may benefit from the Employment Allowance which reduces the company’s Class 1 National Insurance contributions (Employer’s N.I.) by up to £3,000.

In such cases there may be an opportunity for directors to eke out a little more tax savings by paying themselves a salary of £12,500 and dividends up to a maximum of £37,500 (the overall tax saving between the director and the company being around £270).

This second option will not be the best fit for everyone. More than ever, personal circumstances must be carefully considered to give the best results.

Each client of ours will be receiving a personalised recommendation shortly.

Enjoy saving tax?

We have two videos to help on our YouTube-logo-full_color channel; and for regular tax-tips follow our blog on 
or click +Follow at the bottom of this page.