Tax and contracting News
01 - 04 - 2020
Guidance Note
Sole Directors and the Coronavirus Job Retention Scheme
Please be aware that this note is based on the information published as at 31 March 2020 and is intended to provide guidance on how Foremans LLP believe at this juncture the scheme will be implemented. The below is based on Foremans LLP’s interpretation of the available information. You should not regard this as advice on how the scheme will operate as several factors have still to be announced.
The UK has over one million sole director/shareholder owner managed limited companies including Personal Service Companies. These directors do not qualify as self employed even though they will complete an income tax self assessment tax return. As Directors, if the company has a PAYE scheme and they receive a salary then the Director will be classified as an employee.
We have compiled some frequently asked questions which may help to explain our understanding of the scheme:
Can I claim under The Self Employment Income Support Scheme (SEISS)?
No. The Self Employment Income Support Scheme (SEISS) will not apply to the company directors unless you have other sources of self employed income.
Can I claim under The Coronavirus Job Retention Scheme?
Yes. If you are paid a salary through a PAYE scheme through your company you should be able to claim under the Job Retention Scheme as an employee of your company.
What can I claim?
Your company can claim a grant of up to the lower of:
· 80% of your “regular” salary or
· £2,500
What period will this grant cover?
The claim can be backdated to 01 March 2020 and is currently expected to last for 3 months.
Can I backdate even if I have been working?
No. The grant is only available from the date that you are “furloughed” by your company
How do I Furlough myself?
We currently have no guidance regarding how to do this. We suggest that the company writes to the Director / Employee advising that they are being furloughed and the date that this is active. A copy of this letter should be retained on the company file Please be aware you cannot work during a furlough period. Foremans will be advising clients of any additional requirements as soon as they are announced.
When does my company PAYE scheme need to be operative from?
The company PAYE scheme must have been operative as at 28 February 2020.
At what date do I need to have been on the payroll to claim?
You must be on your company payroll as at 28 February 2020.
Can I claim if I work part-time in the business?
Yes. The grant is available for full time and part time employees.
How do I calculate my “regular” salary?
Your “regular” salary is the higher of:
· The same month’s earnings from the previous year or
· The average monthly earnings from the 2019-20 tax year.
What if my salary is paid annually?
Our understanding is that this should be an acceptable salary for the calculation.
What happens if I reduce my hours of work or my salary?
You are not entitled to claim under the Job Retention Scheme if you are still working.
When can my company claim the grant?
The grant will be claimed through a HMRC portal which is not yet available. Foremans will be updating clients as to when access is expected.
Should I continue to pay my salary from my company?
Yes. Salaries must continue to be paid to directors and employees.
Will I need to pay the 20% not funded?
The additional 20% not funded is a matter for employment law as to whether it needs to be paid. We believe it would be up to the employee or director to consider their employment contract and approach their employer regarding payment.
What if there are insufficient funds in the company bank account to pay the salary?
We would recommend processing the salary and leaving the net salary as an amount due to be paid to the director. The amount due will classified as a loan by the Director to the company until funds are available and it is paid. Should you require funding you may also wish to consider if you are eligible for a Coronavirus Business Interruption Loan (CBIL). Foremans will be issuing a separate guidance for these loans.
Is the Salary subject to PAYE, NI, pension, student loan deductions etc?
Yes. The salary will be processed as normal through the payroll and is subject to all the normal deductions before payment to you as an employee.
Will the grant cover any cost other than salary?
We believe that the Job Retention Scheme will reimburse employers for employers National Insurance and the minimum autoenrollment pension costs. We are awaiting confirmation regarding the additional employment costs.
Will the grant be repayable to the government once the crisis is over?
No. The Job Retention Scheme payment is a grant not a loan.
How will the grant be accounted for in my company’s accounts?
The grant will be treated as income and, therefore, subject to corporation tax. Please remember that any salary paid is deductible from profits before the calculation of corporation tax.
Further useful information can be found at:
https://www.businesssupport.gov.uk/coronavirus-job-retention-scheme/
If you would like to discuss any of the issues noted above, please contact us on:
01244 625 500 or 01978 364 000
contactus@foremansllp.com
Whilst all due care and attention has been taken in the preparation of these notes no liability can be accepted for any omission or item contained therein.
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Choose the Industry Sector that you work in. Use the drop down menu in the usual way.
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RESULTS TABLES
COMPARISON TABLE FOR NET INCOME
RELATIVE INCOME BY STRUCTURE
Weekly by :-
Annually by :-
Weekly by :-
Annually by :-
Fixed Data
PAYE
Statutory rates
CIS
Corporation tax
National insurance
UMBRELLA COMPANY
AGENCY INFORMATION
Assumptions
General
- The user is over 21 and subject to tax in the UK
- The user wishes to minimise their tax liability
- The user is subject to national insurance i.e.he/she is not over retirement age
- Only current tax rates and limits are applied
- No tax mitigation payments are made e.g. pension contributions
- Only 3 digit letter 'L' tax codes shown in the drop down list can be entered
- The user does not have a turnover greater than £100,000 where fewer reliefs and or higher taxes may apply
Expenses
- All miles claimed as expenses are for business use using a personally owned car or van
- All other expenses claimed are wholly, necessarily and where appropriate exclusively for the benefit of the business
Foremans LLP Charges
- Foremans fees associated with Limited Company, Sole Trader or Umbrella are as per published rates
- Foremans current Service Costs are allowed for in all calculations.
Holiday Pay
- Holiday pay is accumulated week by week by Umbrella or Agency employer but paid out during the year
VAT
- Limited Company or Sole Trader will be VAT registered
- Limited Company or Sole Trader will take advantage of Flat rate VAT
- Flat rate applied includes the benefit of the additional 1% applicable to the first year of VAT registration
Limited Company Conditions
- One director / one shareholder in a Personal Service Company
- Director of Personal Service Company elects to vote for 100% dividend after salary, costs and expenses
- Director's salary is maximum salary to the primary threshold for NI
- The Limited Company is trading normally i.e it is not subject to IR35 and is not a Managed Service Company
NOTES
- The Current tax rates are taken from the Fixed Data Table
- The current Value Added Tax Rate is 20% and is applied to all invoices and expenses as appropriate
- The Director's Salary is fixed in relation to National Insurance thresholds. Higher Rate Taxpayers should consider the advantages and disadvantages of a larger annual salary or bonus
- Higher Rate Taxpayers may wish to consider the advantages and disadvantages of shared ownership of their business
- Users with a tax code other than three digits and letter "L" may telephone or email our Development Department to request a detailed calculation
- Generally the use of an Umbrella rather than an Agency payroll is only efficient if sufficient weekly expenses are allowable and claimed
- The expenses claimed under an Umbrella should not prevent the proper operation of National Minimum Wage
Dave Wilde, Foremans (UK) Limited
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