In last week’s Blog ‘The Chancellor’s surprise package’, I reported on the additional help that Rishi Sunak had announced because the Government had not initially appreciated just how bad the knock-on effect of the Tier 2 and 3 measures would be, especially on the hospitality sector and their supply chain.
Whilst the new help on offer was clear, how it would be implemented and the requirements to satisfy HMRC, were not. So, I’m pleased to tell you that HMRC has now released guidance on the operation of the twin job support schemes that both start on 1st November 2020.
Confusion clarification on JSS
There are, in fact, two job support schemes (JSS). The original one designed for businesses that are legally required to close is now called JSS Closed. The other one, introduced by the Chancellor on 22nd October, for companies that remain open but with employees working reduced hours: JSS Open.
The schemes may be used by the same business concurrently for different employees if it has premises in other areas, some of which are entirely closed. A business could also move between the two schemes as the restrictions for the area it operates in change.
What businesses qualify?
The more generous JSS Closed can only be used by businesses which are required to close by the coronavirus regulations. These would include areas under the tier 3 restrictions in England, or the similar laws in Wales, Scotland or Northern Ireland. However, where premises are restricted to delivery or collection services, or to serving food outdoors, they count as “closed” if located in a restricted area. All other small and medium-sized businesses can use JSS Open if some of their employees are working reduced hours.
Any business with 250 or more employees on 23rd September is now classed as a large employer. Suppose any business in this category wants to use JSS Open. In that case, they must also show that their trade has been affected by coronavirus. The VAT returns filed between 31st August and 7th November 2020 must show level or reduced sales (looking at box 6 totals) compared with the VAT returns for the same period in 2019.
So, what are the similarities and the differences between the two schemes?
The JSS initially proposed in September has been transformed into something closely resembling the CJRS or furlough scheme, which closes on 31st October. A new HMRC factsheet sets out several examples, but further legislation and more guidance is expected very soon. Under JSS Open, the employee must work at least 20% of their usual working hours (defined as per the CJRS), which would amount to one day of a typical five-day working week. This reduction in hours must be agreed in writing with the employee.
The employer must pay for all the worked hours at the employee’s contracted salary, plus up to 5% of the value of the hours not worked, up to £125 per month. Still, the employer can opt to top-up this figure if they wish to. Additionally, the contracted salary has been capped at £3,125 per month, similar to CJRS.
The JSS grant will cover up to two-thirds of the hours not worked, capped at £1541.75 per month. The employer must pay all of the employer’s national insurance (NIC) on all of the wages the employee receives plus any employer’s minimum contribution to a workplace pension.
An employee who works for 20% of their contracted hours will receive:
- 20% of pay for worked time
- 4% (5% x 80%) of pay for non-worked time, capped at £125 per month
- 49.33 of pay (61.67% x 80%) for non-worked time, capped at £1541.75 per month
In total, the employee receives 73.33% of their pay and foregoes 26.67% of their normal pay.
I appreciate that the HMRC factsheet explanation may look like bureaucratic gobbledygook to anyone who isn’t a tax expert, so perhaps an example may help:
Employee A has an annual salary of £30,000 or £2,500 per month and works on average 200 hours per month, making his hourly rate £12.50.
This employee agrees to work 40 hours per month for 40 x £12.5 = £500 and his employers must pay him for 5% of his remaining normal hours: 8 x £12.50 = £100. The JSS grant should then cover the cost of 61.67% of the total 160 non-working hours: £98.67 x £12.50 = £1,233.38.
Thus, employee A receives £1,833.38 (500+100+1,233.38), which works out at 73.34% of normal pay
And don’t forget, the employer must pay £600 (500+100) plus employer’s NIC and any workplace pension contributions that are relevant.
Under this scheme, the grant will cover for two-thirds of the normal pay of furloughed employees, who cannot work at all, up to a maximum of £2,083.33 per month. The employee must give up one third of their wages, and will have to agree to that change in their employment contract in writing if they are not already on a zero hours’ contract.
Once again, I think an example will help:
Employee B is a cook in Billy’s Burgers with an annual salary of £27,000 or £2, 250 per month, his burger restaurant is in a Tier 3 zone and has to close.
Billy’s Burgers can claim for two-thirds of Employee B’s normal monthly salary or £1,507. Still, they will also have to pay employer’s NIC and any workplace pension contributions that are relevant.
Job Support Schemes: Other rules and conditions
Both of the JSS grants schemes will run from 1st November to 30th April 2021, with the conditions to be reviewed in January 2021. The employer need not have claimed under the CJRS to use either JSS. The other conditions for both JSS schemes are:
- The employer must have a UK, Isle of Man or Channel Island bank account
- The employer must use PAYE online
- The employer can only claim for eligible employees qualify for the grants (see below)
- Large employers are strongly discouraged from paying dividends to shareholders while using the scheme, with the clear implication that if they do, the rules might be changed.
Job Support Schemes Eligibility
Employers will be able to claim under both JSS schemes from 1st November 2020 but cannot actually submit the first claim until 8th December 2020 and claims can only be made for a minimum seven-day period.
Because of fluctuating work patterns, employees can move in and out of the JSS Open and do not have to work the same way each month. Also, a claim can’t be submitted for a particular employee until that employee’s wages have been paid and reported under RTI. This is to reduce fraud but means the employer has to fund the entire payment to the employee in advance.
I fully appreciate this week’s Blog is quite complex, as is the subject matter, however, HMRC has promised that detailed guidance on how to make claims under either JSS will be published shortly. I hope that this time they live up to their mission statement to provide guidance in plain English!
If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.