The Chancellor announced revisions to the CJRS on 29 May 2020. As of 24 May 2020 the scheme has been used by 1 million employers protecting around 8.4 million jobs at a total cost of £15 billion. The changes outlined are designed to step the economy back to a recovery and are based on:
- Flexible furloughing – from 1 July employers can bring back previously furloughed employees for any amount of time whilst still being able to claim CJRS for hours not worked. The CJRS claim will then cover the number of hours not worked by reference to the usual hours worked in the claim period. Further guidance is to be issued concerning this but employers will need to report hours worked and the usual hours the employee would be expected to work in the claim period.
- The scheme will be closed to new entrants from 30 June. Due to a 3 week minimum furlough period it’s important to note that the final date by which an employer can furlough an employee for the first time will be 10 June. The employer then has to 31 July 2020 to submit claims in respect of periods up to 30 June 2020. Therefore, from 1 July 2020 the scheme will only be available to employers that have previously used the scheme in respect of employees they have previously furloughed.
- Employer costs – from 1 August employers will pay Employer National Insurance Contributions (ER NIC) and employer pension contributions on the full furloughed pay, then from 1 September the employer will also have to pay at least 10% of the salaries/wages (plus ER NIC and employer pension contributions on full furloughed pay), from 1 October the employer contribution will increase to a minimum of 20% (plus ER NIC and employer pension contributions on full furloughed pay) and the scheme will end on 31 October. For the average claim HMRC estimate this will amount to employer costs of 5% of gross employment costs in August, 14% in September and 23% in October
- One other important change is there will be a limit on the number of staff that can be included in a claim from 1 July 2020. The limit is the maximum number of staff included in any one single claim covering a period up to 30 June 2020.
Based on the above some practical actions to consider around financing are as follows:
- Consider the operational plans for your business over the months from June-October. If there are employees that will need to be furloughed after 1 July make sure that they have been furloughed no later than 10 June.
- Flexible furloughing from 1 July will allow some of your team to come back on a part time basis. In light of the business environment opening up, which employees can add the most value and potential revenue streams to your business in the coming months?
- The average costs of furloughed employees to your business will increase from August onwards. Based on HMRC estimates the additional cost could be 5% of gross employment costs in August, 14% in September and then 23% in October. Calculate the total figure that those percentages will amount to. This total figure will need to be sourced from either existing cash resources, CBILS (Coronavirus Business Interruption Loan Scheme), Bounce Back loans, or deferral of VAT and self-assessment bills. But remember all of these are loans that will need to be repaid in the coming years, so is an equity investment something to consider?
- In preparing cashflows for the coming months you need to consider the impact that Covid19 will have on your particular sector post lockdown and adjust sales revenues to estimate the effect this will have on your profitability and cashflow. These are challenging conditions in which to prepare a budget but it’s better to try. The announcements on 29 May 2020 should form part of your cashflow planning.
- Cash is still king. Continue to prepare weekly cashflows, to manage your debtors and to minimise your overheads. The timetable set out for the removal of CJRS provides dates to work to, albeit, until lockdown is released forecasting revenues will be difficult but should still be attempted.