16-11-2020 UPDATE
The Job Support Scheme has now been postponed because the furlough scheme has been extended until the end of March 2021. Until then, the government will continue to pay up to 80% of an employee’s usual salary, up to £2,500.
The pandemic has not only caused thousands of deaths but has also damaged the economy. Because of it, the UK entered into a recession on 12 August. Many businesses have struggled to stay afloat and made use of the government’s furlough scheme to pay their employees – this allowed them to keep their staff instead of having to let them go.
The furlough scheme has been critical during the pandemic but, now that the scheme is coming to an end, both companies and people are having to find other options. As contractor accountants, we’re taking a look at what you can do once furlough ends and how you can make the most of the situation.
What Could the End of Furlough Mean?
The furlough scheme, which initially paid employees 80% of their salary up to a maximum of £2,500 per month, was reduced over the past few weeks and will end all-together on 31 October.
The scheme was designed to avoid mass redundancies, so it’s natural for companies and individuals to be concerned now that it’s coming to an end. There is a real chance that many individuals will be left out of work soon, since companies may not be able to afford paying their staff.
This means that both jobs and businesses could be at risk. However, it’s important to weigh in everything before making decisions with long-term ramifications. This is because the situation is not all doom and gloom, since the government will replace furlough with the Job Support Scheme.
In essence, because this scheme will help both employees and employers, business owners shouldn’t rush to close their companies as furlough ends. The new scheme is set to kick in at the start of November and was created to protect viable jobs in businesses that are facing lower demand over the winter months because of the pandemic.
Because we’re limited company accountants, we can help you understand what the new scheme will entail and how you can make the most of it. We also offer specialist advice designed to maximise your tax efficiency, so don’t hesitate to get in touch with us today.
The New Job Support Scheme
This scheme will start on 1 November 2020 and runs for 6 months. According to the government, a company will continue to pay its employees for the time of their work, but the costs of the hours not worked will be split between the employer, the government and the employee (through wage reduction).
If you are forced to shut your company temporarily due to coronavirus restrictions, the government will pay up to 67% of the wages of employees. The Job Support Scheme will be useful for businesses like pubs and restaurants, since they will be highly impacted if told to close because of stricter measures (Tier 3, for example).
The government’s contribution will be capped at £2,083.33 a month for each employee and staff must be off work for, at least, seven days. Employers don’t have to pay towards the staff’s salary.
Things are different if work is open but not busy. In this case, staff has to be paid by the employer to work a minimum 20% of their hours per month, and employers also have to pay an extra 4% of the total wages to cover for hours that are not worked.
The government pays 49% of the total wage to cover these hours, meaning employees will be able to earn a minimum of 73% of their normal salaries. The government’s contribution is capped at £1,541.75.
Other Government Help
As a business owner, you may also be eligible to claim the Job Retention Bonus.
This refers to a £1,000 one-off taxable payment made to the employer for each employee furloughed and kept employed until 31 January 2021. The bonus can be claimed between 15 February 2021 and 31 March 2021. You may be eligible if you furloughed employees and made an eligible claim through the Coronavirus Job Retention Scheme or through the new Job Support Scheme.
In addition to this, the government will also give companies £1,500 for every 16-24-year old they hire for a six-month work placement. You will also receive £2,000 for every under-25 apprentice taken on until the end of January 2021 (or £1,500 for over-25s).
Why Should You Opt for Self-Employment?
The end of the furlough scheme can be seen as an opportunity to pursue a career as a freelancer or contractor as well. If you’ve been considering this option, there is no time like the present, as there are many benefits to becoming self-employed in these uncertain times.
After all, the coronavirus outbreak has shown how easy it is for employees to be affected by things outside of their control. If you’ve been left without a job, for example, a career as a contractor or sole trader can help you to thrive financially.
In a less-than-stable environment, which is what we’re seeing at the moment, self-employment can mean having several sources of revenue, as well as low business costs if working from home. So, if an individual loses a job, he or she still has several other gigs or projects to fall back on.
An employee, on the other hand, will lose all wages if let go and will have to hunt for a new job, something that is now more difficult due to the pandemic.
In addition, the Coronavirus Self Employed Income Support Scheme (SEISS) has been created to protect self-employed individuals in a similar way to permanent workers. In the winter economy plan, Rishi Sunak has introduced a first flexible grant at the start of November that will cover 40% of average monthly profits with a limit of £3,750.
This will be a single instalment covering three months’ worth of profits. The second grant will cover three more months from the start of February.
So, the end of the furlough scheme is not the end of the world for either businesses or employees. On the contrary, the government will continue to support companies across the UK and individuals can take this opportunity to become self-employed, whether through owning a limited company or by freelancing.
At Gorilla Accounting, we have helped countless self-employed individuals to grow their business, and we’re more than happy to help you to the same as well. Get in touch with our expert accountants on 0330 024 0406 to discuss your needs and how we can help.
