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Government’s Job Retention Scheme Does Not Cover Owner-Managers

Posted 4 years ago

Government’s Job Retention Scheme Does Not Cover Owner-Managers
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The Government has now published further details on the Job Retention Scheme which was announced amongst a raft of measures to support businesses through the current disruption of Coronavirus. 

Yet, the scheme does not extend to owner-managers of companies that pay themselves through dividends. According to the Treasury, these companies are ineligible because it is allegedly impossible to know whether the dividends arise from their work or from passive investments. As such, the government is reluctant to subsidise those with extensive earnings. 

The majority of entrepreneurs/freelancers establish Limited Companies (Ltd), paying themselves a minimum wage with the rest comprising dividends. So, owner-managers could be earning, for example, £50,000 per annum as a combination of minimum wage - around £14,000 -  and dividends. Yet, now under the Scheme they are only able to claim 80% of their minimum wage. 

Key takeaways:

  1. Employers can claim for 80% of furloughed employees’ usual monthly wage costs, up to £2,500 a month, plus the associated Employer NIC and minimum auto-enrolment Employer pension contributions on this
  2. Employers must have created and started a PAYE scheme on or before 28 February 2020 and have a UK bank account
  3. To be eligible for the subsidy, when on furlough, an employee cannot undertake work for or on behalf of the organisation. This can extend as far as an employee not checking or responding to work emails
  4. At a minimum, employers must pay their employees the lower of 80% of their regular wage or £2,500 per month
  5. While on furlough, the employee’s wage will be subject to the usual income tax and other deductions
  6. Employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, equality and discrimination laws will apply in the usual way
  7. 3 weeks is the minimum length an employee can be furloughed for

What are the furlough rules?

According to the Government, to be eligible for the subsidy, when on furlough, an employee can not undertake work for or on behalf of the organisation. This includes providing services or generating revenue. However, it is also not yet clear how HMRC will know that a worker has been furloughed and not still actually working. What checks will be put in place to validate the status of a worker?

This requirement surely harms businesses more than supports them? Indeed, why would the government stop an individual from working which risks weakening productivity and thus the security of an overall business? Furlough is an opportunity for individuals to continue business operations while they are technically closed. 

It’s clear from the government’s announcement that while this package is intended to help businesses, the urge to prevent fraud is removing a perfect opportunity to ensure that businesses remain secure. In a time of national crisis, which threatens the economic future of not only businesses but the country, the Government needs to shift the focus away from bureaucracy to swift action to support enterprises at risk. 

Author: Sacha Bright & Oliver Murphy

Disclaimer

To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed. Nextfin is not liable for any damages arising from the use of or inability to use this site or any material contained in it, or from any action taken as a result of using the site. 

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