Here’s a CJRS update contractors actually need: key dates and financial pinch points

The latest date which CJRS contractors were told to watch has come and gone with little fanfare.

But there are markings in the calendar other than June 12th that furlough scheme users need to beware of, partly as some of them represent financial pinch points, writes Patrick Gribben, director of client services at Intouch Accounting.

New CJRS conditions will soon apply

The Coronavirus Job Retention Scheme, in its current form, will run until June 30th 2020 (two weeks yesterday), with the 'flexible furlough' version of the scheme being phased in from July 1st 2020. 

The intention is that this will introduce more flexibility to help employees back into work and employers will be asked to contribute towards the cost of their furloughed employee's salaries and replace part of the contribution currently made by the government. Furloughed employees will remain entitled to 80% of their wages (subject to the monthly cap of £2,500) throughout their furloughed time.

Key furlough scheme dates

The key dates for the current changes are below. I say ‘current’ because the scheme has had many (many) updates and iterations – and the following dates for your diary are based on chancellor Rishi Sunak’s May 29th update.

• June 10th 2020: This was the last day on which an employee could have been furloughed for the first time, in order that they can complete the minimum three-week furlough period before the scheme closes to new entrants.

• June 30th 2020: The original scheme will close to new entrants.

• July 1st 2020: The “flexible furlough” version of the scheme takes effect. From this date, the scheme will only be available to cover the wages of employees who were furloughed at some point under the original version of the scheme.  At the same time, employers will be able to bring back furloughed employees on a part-time basis, with the furlough scheme contributing up to 80% of their salary (subject to the relevant cap) for their normal hours not worked.

• July 31st 2020: Employers claiming under the original version of the scheme must have completed and submitted all claims for the period to June 30th 2020.

• August 1st 2020: From this date, the scheme will no longer cover the costs of Employer NIC and pension contributions on furloughed wages and employers (including contractor limited companies) must cover this cost.

• September 1st 2020: The government contribution will be reduced to 70% of wages, up to a cap of £2,187.50 per month for the hours the employee does not work. Employers must make up the difference of 10% to bring furlough payments to 80% of wages (up to a cap of £2,500) for unworked hours, while continuing to meet NIC and pension contributions on furloughed wages.

• October 1st 2020: The government contribution will be reduced to 60% of wages, up to a cap of £1,875 per month for the hours the employee does not work. Employers must make up the difference of 20% to bring furlough payments to 80% of wages (up to a cap of £2,500) for unworked hours, while continuing to meet NIC and pension contributions for furloughed wages. 

What does flexible furloughing mean for PSC contractors?

It could be argued that the ability to place an employee on furloughed status for part of their contractual working week has little value for contractors.  It is the contractor’s own company that will foot the bill while they are furloughed. But if they’re working and not furloughed, then contractors are generating profit for their business – although such activity means they would not be eligible to make a claim under the CJRS.

This flexibility would though, be of use to contractors if end-hirers engage them on a part-time basis while the economy restarts. That would potentially be a way for businesses to control their costs while restarting projects important to delivering services and innovation while consumer demand remains low in the period following the easing of lockdown across the UK.

Now’s the time to leave the CJRS alone

Given that any economic recovery is likely to take several years and that businesses thrive when they are able to access the resource they need, when they need it (and crucially not when they don’t), it would seem sensible for the government and HMRC to now leave the CJRS alone, and instead take a closer look at private sector IR35 reform.

Specifically, they should examine the findings on IR35 from the House of Lords and objectively consider whether the proposed changes to the IR35 rules (applicable already to off-payroll workers in the public sector) are likely to encourage business investment in the UK and generate additional tax revenue or, as some assert, force businesses to base project delivery overseas and add to the number of jobless contractors.

With IR35 reform as well, some contractors may simply throw in the towel

With the CJRS in particular though, the scaling back of the support paid for by the government will place a disproportionate burden on contractors whose resources have run dry, due to either projects being cancelled because of the covid-19 pandemic or the then-imminent roll out of IR35 reform. The combination of a less appealing furlough scheme and a more burdensome off-payroll framework may mean that some PSC owners will be forced to decide whether to throw in the towel on contracting and join the growing number of people looking for work, just as our economy shrinks.