The Coronavirus Job Retention Scheme (CJRS) was implemented in March by Chancellor Rishi Sunak as part of the Government’s package of emergency measures to support public services, people, and businesses during the lockdown.
The furlough scheme allows furloughed workers to receive 80% of their wage for all employment costs up to a cap of £2,500 per calendar month, including tax, NICs, and pension.
Once an employee has been designated as furloughed and agreed between relevant parties, the employer must then inform Her Majesty’s Revenue and Customs (HMRC).
As of June, more than nine million jobs had been furloughed under the CJRS, at a cost of £20.8bn to UK taxpayers.
Now, in a bid to tackle furlough fraud, employers who think they may have accidentally misused the CJRS could be given 30 days to admit any potential errors as part of a new bill that is being fast-tracked through Parliament.
What does the proposed legislation mean?
The new bill will give HMRC the power to check that grants made to employees through the job retention scheme have been used correctly to pay workers’ wages and ensure that employers have not been overpaid furlough reimbursement.
It would allow authorities to reclaim through income tax assessments any furlough money overpaid to employers or not spent on wages as intended.
After the proposed 30-day amnesty, any organisation caught deliberately using furlough money for anything other than its intended purpose would face a financial penalty.
This new legislation (part of the finance bill 2020) could be passed as early as July.
What are my options?
The quicker you acknowledge any potential errors regarding furlough payments, the better chance you have of doing something about them before it’s too late.
The Future Strategy team is on hand to help if you believe you have accidentally misused the furlough scheme.
They can also talk you through the best options to help save your business or advise you on what to do if you’re thinking about closing your company and starting again.
If you’re the owner of a limited company with problems dealing with debts before the Covid-19 pandemic. It will likely continue to struggle once restrictions have been removed.
Below are some business rescue options, together with closure options if you think your business needs to close or is unlikely to survive the pandemic:
Company Voluntary Arrangements
A Company Voluntary Arrangement (CVA) can be implemented when a business is in trouble but shows signs of being financially viable and could still be profitable in the future.
The arrangement means all of the company’s debt can be transported into one manageable monthly payment, so it can carry on trading without worrying about the threat of liquidation or winding-up orders. petitions or liquidations being threatened.
The average cost of CVA is somewhere between £5,000 and £10,000, while the creditors ultimately decide the cost of supervising the arrangement.
Administration
Pre-packaged or traditional administration will halt all legal action against a company. This will also stop creditors from winding up the company and give you time to explore your options.
An administrator (also known as an Insolvency Practitioner) will be called in to see whether the company can continue trading or be sold so that new owners can turn the company around. If it can’t be sold, the company will be closed down and the assets sold to cover its financial responsibilities.
At this stage, you may also consider voluntary liquidation, which will give you time to prepare to handle obligations such as personal guarantees, redundancies, and lease terminations.
Read more about Company Administration.
Company Restart
If you’re facing the worst-case scenario of your business being unable to pay its bills, one option is to close your company and start again. Still, the law must be carefully considered as strict legal boundaries define what you can and can’t do.
This legislation is in place to stop directors dumping one company simply starting another to escape debts (and the consequences).
When your failing company has legally closed, you can continue to trade in a new business. There may even be the possibility of starting a new company with assets of the old, bought for the new business at more affordable costs.
Read more about Company Restarts.
Liquidation
When a business finds itself in too much debt to recover through recovery procedures such as financing, administration, or a Company Voluntary Arrangement (CVA), it may be that a Creditors’ Voluntary Liquidation (CVL) is the only viable course of action.
When your company is in liquidation, no legal proceedings can be taken against it. Providing you have no personal liability for your company’s debts, your creditors will be unable to take any further action against you.
Dissolution
Voluntary dissolution can be used to close down your limited company under specific circumstances.
The process includes removing the business from the Companies House register, on which all official company data is displayed. Once the name is removed from this register, it will no longer legally exist.
The most important thing to remember is that you cannot dissolve your business if it has significant debts to its name, and you must meet several requirements.
Read more about Dissolving a Limited Company.
If you believe you may have accidentally misused the furlough scheme and would like to discuss your options, please contact us today. Our initial consultation is FREE.
Here we will assess the viability of the business and offer advice on appropriate strategies. We will also advise on the solution options available concerning your specific situation and requirements. These solutions are wide-ranging, cost-effective, and flexible.
