Mint Formations co-founder Andy Tree has penned an open letter to Chancellor of the Exchequer Rishi Sunak calling for greater support for business leaders denied help from the furlough scheme.
While Tree acknowledges the furlough scheme is an unprecedented act of business community support that has provided a lifeline to businesses and employees across the country, his letter is intended to highlight a major failing of the scheme that could jeopardise the financial security of business owners.
As a company that works closely with business owners, helping with everything from starting a small business to managing shareholder agreements, we’re passionate about helping our community thrive. While we can see issues with the furlough scheme that need resolving, we feel duty-bound to help.
What’s the Problem Mint Formations Wants to Solve?
The wording within the Coronavirus Job Retention Scheme launched by Sunak (CJRS) lays out some precise conditions that create loopholes we’re keen to close. It all comes down to the PAYE tax system.
Most people pay tax monthly based on their income. However, business owners have another option. They can opt to secure salary payments through the Annual Payroll scheme — an absolutely legitimate and legal practice that sees them pay the same amount of tax every year. Usually deployed by very small operations, this system often helps reduce accountancy administration tasks for small business owners. Instead of having to pay accountancy admin fees for constant HMRC submissions, all tax payments are handled in one go.
To claim under the furlough scheme — if you’ve used the Annual Payroll system — you must provide HMRC with evidence of your income and tax payments for the most recent tax year, 2019-2020, just like anyone else.
The deadline for the annual submission of tax returns was April 5th 2020, and many people would aim to submit their financial data on this date as is standard practice. However, the furlough scheme requires data to be available from March 19th — the data the CJRS came into law. This means anyone who had not yet submitted their annual payroll was not legally entitled to furlough support — despite the fact their returns were not late and they still had over two weeks to submit them.
Effectively, the CJRS moved the annual payroll deadline for business owners under this scheme to March 19th without warning, meaning many who had not yet paid the tax they fully intended to pay were left frozen out of financial support.
Mint Formations see this as unfair and unjust, and a risk to the security of many businesses. Nobody using this scheme is attempting to avoid tax payments, but instead, manage their tax in a way that is legally allowed. Indeed, many HMRC advisors recommend this process be used for small businesses. Our discussions with a senior HMRC representative found this has had a serious impact on many business owners already.
But, this problem doesn’t have to be one we accept.