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Government furlough scheme: How it works

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The Covid-19 epidemic has brought with it challenging times for companies and individuals around the globe. Millions of employees in the UK alone have been forced to work from home, or have been left unable to work altogether.

There is no such thing as ‘business as usual’ in times like these, and in order to cope with this new reality, the government has introduced various safety nets to provide relief to those affected. One of these is the Coronavirus Job Retention Scheme, widely spoken of as the ‘furlough scheme.’ Here we take a look at how this scheme works, and how it can help your company.

What is the furlough scheme?

The Coronavirus Job Retention Scheme, or ‘furlough scheme’, was introduced by the government in March to protect companies and their workers nationwide. It serves a number of purposes, including ensuring that employers left unable to work have a source of income, and allowing financial relief to companies unable to operate with a full workforce.

Furlough leave is a period of granted absence from an individual’s regular employment. An employer may furlough an employee through choice, to lower the company’s outgoings by cutting back the workforce, or when the business is unable to operate.

How does it work?

When an employer makes the decision to furlough a staff-member, their usual working responsibilities end on the date at which their term of furlough leave begins. The individual must be notified before this date, and discussions must be held as to how much of their usual salary they can expect to receive. The employer must give this notice in writing in order to be eligible for the scheme, and a record of this must be kept for five years.

  • 70% of monthly wages covered by the government (Updated 1st September 2020)

Companies must pay furloughed employees at least 80% of their regular wage, up to a maximum of £2500 per month. A sum of 70% of these employees’ wages can then be claimed back from HMRC, and will be returned to the company via BACS. In order for the employee’s wage to be eligible for reclaim from the government, they must have been in employment with the company since before the 28th February 2020.

Employers must now contribute 10% to furloughed employees’ wages – From the 1st September 2020, changes to the Job Retention Scheme mean that employers will now have to contribute 10% of furloughed employees wages to the total 80% of which they are entitled. This change comes as the government’s move to wind down the scheme begins, reducing HMRC’s contribution from 80%, to 70% of furloughed employees’ wages.

  • Individuals remain employed during the furlough period

Furloughing a member of staff is not the same as making them redundant. Furlough leave is intended as a temporary measure, which can be reviewed at a later date. In this case, furloughing a member of staff would mean that their working responsibilities are only put aside for the meantime, and this position will be reviewed once things return to normal. Because they are still employed by the company, furloughed employees still have the same rights as they would in the workplace. These include protection from unfair dismissal, statutory sick pay, and redundancy payments.

What other help is available?

If your company is facing financial difficulty due to the Coronavirus outbreak, and furloughing staff members is not a certain solution, other help is available. There are several options you may wish to consider in these circumstances:

Continue to trade

If your company has a viable, healthy business-model, we offer a number of services which focus on allowing a company to continue trading, while working towards a stronger financial situation. These include:

  • Raising finance

If you feel as though a cash injection into your company would help to stabilise your situation during this period, you may wish to consider raising finance. With the help of a finance broker such as ourselves, capital can be raised to cover the expenses necessary to stand your company in a better position. To explore this option further, get in touch today.

  • Enter an affordable monthly payment plan

If your company is in a position where its business model is viable, but unaffordable debt is leading to financial difficulties, a company voluntary arrangement (CVA) may be an option. With our help as a licensed insolvency practice, an affordable monthly repayment plan can be drawn up, and agreed with your creditors. This evaluates the affordability of the debt, and provides the best possible return to creditors in the given circumstances. To read more about this option, please visit our dedicated page.

More on company recovery

Close company

If your financial situation has declined past the point of realistic recovery, or you are struggling with unmanageable levels of debt, closing your company may be the right way forward.

  • Creditors voluntary liquidation (CVL)

With the help of insolvency professionals such as ourselves, a creditors voluntary liquidation (CVL) can bring your situation under control. Entering a CVL allows directors to make the choice to close the doors on their company before they are forced to by means of a winding-up petition. It provides creditors with more chance of a healthy return, and ties a knot in the situation before it gets further out of hand. Company assets are realised to cover as much of the outstanding debt as is possible, the process of which is overseen by a licensed insolvency practitioner (IP). It is crucial to recognise the signs that a financial situation is getting out of hand, and bring this under control before it does further damage to your position, or the position of your creditors. Failing to do this may lead to action being taken against you by the Insolvency Service. To explore this option further, please visit our dedicated page.

More on company closure

In summary

The difficulties brought on by the Coronavirus outbreak have hit businesses globally. To combat these effects, the government has introduced certain schemes to minimise the damage to companies. The Coronavirus Job Retention Scheme, or ‘furlough scheme’, allows companies to place staff on leave during the period, while ensuring that they still have a source of income.

Companies are required to notify members of staff in writing before they are furloughed. Once on leave, the company is required to pay the individual no less than 80% of their monthly wage (with a cap of £2500). 70% of the total wage can then be claimed back from the government at a later date, leaving the company liable for payment of 10% each employees’ wage. While on furlough leave, individuals are still employed by the company, meaning that they are still entitled to their usual rights, such as protection from unfair dismissal, and redundancy pay. At the end of the furlough period, the employee’s position must be reviewed, and the decision must be made to either restore their position at the company, or terminate their employment.

If your company is facing financial difficulty during this period, and requires help further to the furloughing of staff, it is important to consider further options. Whether this is raising finance, or exploring insolvency options through professionals such as ourselves, it is crucial to act as quickly as possible to secure the best possible outcome for your situation.

How we can help

If you require further information regarding the government support available for your company during the Coronavirus outbreak, or you would like to explore alternative options, we can help.

Wilson Field are a team of licensed and regulated insolvency professionals with the tools and experience to guide your company though this difficult period. Whether the answer is raising finance, managing debt levels through means of a CVA, or entering into voluntary liquidation, we offer a free consultation with one of our experienced advisors to guide you through the steps that you can take.

It is crucial to act as quickly as possible once you recognise that your company needs help. Get in touch today to explore the options available to you.

Beverley Horton

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