Furlough scheme revisions vital for businesses during uncertain July

With several Covid-19 business relief initiatives due to begin winding down this week (from July 1), including the furlough scheme, business advisory and wealth management firm, MHA calls for greater support from the UK government to ensure small businesses remain financially stable and bridge the gap to lockdown restriction easing on 19 July.

From Thursday, July 1 a number of relief schemes introduced to help businesses and employees during the pandemic will see changes. This includes government furlough – officially known as the Coronavirus Job Retention Scheme. Official figures show that around 3.4million people are currently on furlough, receiving up to 80% of their salary from the government. A total of 11.5 million jobs have reportedly been supported by the scheme over the course of the pandemic.

Under the current terms, employers can claim for up to 80% of their workers’ salaries, with a value of up to £2,500 a month. While the government foots the bill for that, employers meet the cost of National Insurance payments and pension contributions for each employee.

However, from July 1, employers will be responsible for a larger chunk; paying 10% of their furloughed workers’ salaries, with the government covering the remaining 70%.

Although this is not the end of the furlough scheme, it is the start of the winding-down process, with a view to terminating it completely by September, when it is expected that all Covid restrictions will have been lifted.

From August 1, employers’ contributions will rise to 20% until the scheme officially comes to an end the following month.

Commenting on the news, MHA corporate and payroll partner, Adam Parton said: “With key government support schemes, such as the Coronavirus Job Retention Scheme (better known as the furlough scheme), due to begin winding down from July 1, UK businesses need a comprehensive support package that covers all sectors, especially as we all eagerly await the anticipated planned full easing of restrictions on 19 July.

“First of all, this support should include keeping the critical furlough scheme in place for a longer period, as well as revaluating the time frame for settlement of deferred VAT payments, and extending the ‘holiday’ period from making repayments on bounce back loans.

“If nothing changes, from July 1, UK businesses will have to contribute towards the cost of their furloughed employees’ wages, starting from 10%. This means that the Job Retention Scheme claims that can be made by businesses will reduce to 70% (in addition to the current cost of employers’ NI/ pension) from the current 80%. In light of the delay of ‘Freedom Day’ to July 19, the government should postpone these changes to at least July 31 and stick with paying 80% of furlough employee’s salary, without asking for employer contributions. Granting an extension will give businesses an encouraging sign that the government understands the challenges they face and is continuing to support them. Failing to do so would be another hard hit for businesses, especially for those whose opening has been impeded by the government’s delay of abolishing restrictions as they have been the most disadvantaged.

“While the furlough scheme, in particular, should be extended, concerns remain over potentially fraudulent use of the initiative, with HMRC yesterday (June 28) confirming that over 13,000 cases are currently being investigated. There’s no easy way to prevent possible miss-use of the scheme, aside from having a more rigorous policing of the businesses that are taking this support. Extra checks could include looking at whether businesses are amassing debt that could never be repaid, whether staff that should have returned to work are remaining on furlough or whether their roles are already redundant. In the coming years business owners and managers should be conscious that their decisions could come under scrutiny, and be aware that bad ones may have consequences.”