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.

Mint Formations’ Thoughts on The Furlough Problem for Small Business Owners

It’s been clear from the beginning that the furlough scheme has every intention of being a powerful economic tool to retain businesses within the UK and provide stability coming out of this crisis. It is not purely a method of satiating workers and winning over a few voters.

Without the furlough scheme, unemployment would be much higher than it already is, and Mr Sunak is aware of this. This scheme was devised to support everyone in the business community and keep our economy alive, which means we don’t believe this loophole is intentionally designed to exclude business owners using annual tax systems. It would make no sense for the government to behave in this way, given the sincerity of the decision taken to provide furlough support.

Instead, Andy Tree and the Mint Formations team believe it was purely due to a focus on the more largely employed PAYE scheme that resulted in the wording that has led to such an exclusion. With fast-footwork needed to launch the CJRS, the government set its sights on the more commonly used real-time taxation system and failed to consider annual payments.

How Mint Formations Recommend The Government Supports Small Business Owners

Because we are certain the government and Chancellor Sunak have not acted in a way meant to punish businesses on an annual payroll system, we believe that quick action can avert disaster. This is why Andy Tree has penned his open letter to Sunak, to draw attention to this issue and bring about a swift conclusion.

So what are we proposing changes?

We’re advising that the CJRS directive be amended to allow for annual payroll schemes recorded for the 2018-2019 tax year to be included — providing the employer remains registered under the scheme as an active business. This means all records will be available for HMRC to review and that the March 19th deadline currently imposed will not be an issue because data can be used from the April deadline of 2019. We are also suggesting the March 19th deadline is changed to allow for any payroll submissions made within the standard deadline of April 5th 2020 to be used for applying for furlough.

Mint Formations acknowledges this is not a simple change. The automation process of furlough application makes it difficult to adapt now the directive is in place. We have advised Sunak that the best way to work around this is to present applications with an option to inform HMRC if they are applying using annual payroll data rather than PAYE. If they select yes, they’ll go to a separate system. Therefore a new system doesn’t need to be devised for all applicants, just a select few.

We are also pushing for a right to appeal system.

When furlough is denied, there is no current opportunity to appeal the decision. We want that in place. Deadlines like March 19th can be missed due to circumstances such as bereavement or illness — something more likely to affect small businesses as they are unlikely to have payroll teams to cover for them due to absence. People should not be denied furlough support due to such situations. It’s another example of how hasty and ill-considered directives like CJRS can lead individuals to suffer unnecessarily, and unfairly.

Mint Formations want to reiterate that the furlough system is a much-welcomed and appreciated system — but it does require fine-tuning to ensure it works for every member of the business community. Sunak is quoted as saying:

“This struggle won’t be overcome by a single package of measures. We will support jobs, income, businesses… we will do whatever it takes.”

We believe in these words and are confident Mr Sunak will listen to criticism of the current CJRS directive and provide answers that support everyone.

What Happens Next?

Andy Tree submitted the letter to Mr Sunak on April 29th, and we currently await a response. We advise all business owners and individuals affected by this problem to speak to their local MP. As with all issues like this, the more evidence there is of a problem, the faster we can expect a response. Even if you aren’t facing problems, be sure to support anyone you know that is.

Got concerns about furlough payments, or worried about how Coronavirus will impact your business and looking for support? Contact the Mint Formations team today and we’ll look at ways we can help you.

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Raj co-founded Mint Formations with business partner Andy Tree in 2017. Mint formations is established to nurture small UK businesses and enable exciting new opportunities for quick growth. As a successful entrepreneur, Raj knows how to start and run a business. He currently resides as a board member of seven successful companies across the world. He is best known for founding Integra Global Solutions, specialists in robotics, automation, and business process optimisation.

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