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Archives for October 2020

The Revamped Job Support Scheme – “JSS Open”

The “Revamped” Job Support Scheme

So here we go again – another scheme to get our heads around!

The changes announced last week are far more generous than the first Job Support Scheme, which was of little use to many of my clients.

This one – the” Job Support Scheme Open” may well be of relevance to many small businesses and works as follows:

The JSS Open Scheme

  • The employee must work at least 20% of their usual hours
  • For the hours not worked, the employee will still earn 67% of their normal pay – this is funded 61.67% by the government (up to a max of £1541.75 per month), and only 5% by the employer.  The max salary you can base the calculations on per month is £3125.
  • The employee therefore will earn at least 73% of their normal wages (see the worked example below for the maths!!)
  • Employers claiming the JSS Open may still claim for the Job Retention Bonus (the £1,000 due in February for retaining furloughed staff) and the grant claimed under the JSS Open scheme can be used to help meet the minimum wage criteria for the bones scheme

Which Employers Can Claim?

  • Any employer, still trading, but continuing to face reduced demand for their services, with a PAYE scheme and a UK bank account

Which Employees Can You Claim for?

  • An employee had to be on the payroll between 6 April and 31 Aug (technically the RTI had to be submitted by 23 Sept) and still employed on 23 Sept
  • Employees do not need to have been furloughed before to be eligible
  • Employees must be working at least 20% of their usual hours
  • You must reach written agreement with your employee that they have been offered a temporary working agreement, which must cover at least 7 consecutive days

How do you claim?

Further details are to be announced soon but we do know the following:

  • The scheme starts on 1 November and runs until 30 April 2021
  • Money is paid in arrears once your claim has been approved
  • First claims can be made from 8 December
  • Your accountant can make your claim for you (“phew” I hear your cry!!)

A Worked Example

Helen works full time usually – and earns £1,000 a month.  She works 5 days per week

Under the JSS Open scheme, she agrees with her employer to work 1 day per week – this is 20% of her usual working hours.

Her pay:

Normal pay for 1 day per week – 20% x £1000 = £200

Time not worked – 80%

Of the time not worked – Helen will receive 66.67 of her normal pay – 66.67% x £800 = £533.36.

Helen’s total pay is therefore £733.36 in total – or 73% of her usual pay – for working only 20% of her usual hours!

The employer contribution is 100% for the day she worked – £200, plus 5% of the pay that she received for not working – 5% x £800 = £40.  Total cost of the employer £240.
The employer is also responsible for NI and pension contributions.

The government contribute 61.67% of the pay for the time she did not work – 61.67% x £800 = £493.36

The calculation for employees who are not on fixed salaries or fixed hours is hideous – and requires a spreadsheet setting up!

Is it for me?

The new scheme is far more generous than the one originally announced, which required employees to work 1/3 of their usual hours and for employers to cover 1/3 of their wages for the period not worked.

It is therefore well worth looking into and if you require any further information or advice in connection with the scheme, please do get in touch with Rosie Forsyth.

NB: There is also the “Job Support Scheme Closed” which is for businesses legally required to close, and is not covered in this blog.

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Closing down a limited company – how is it done?

This second blog looks at how you can close down your limited company if you have decided that trading is no longer viable.

There are 2 ways you can close your company if the company is solvent (ie is able to pay its debts).

  • Applying to have the company struck off at Companies House
  • Member’s Voluntary Liquidation (MVL)

The preferred option will depend on how much money there is to extract from the company and whether from a tax perspective you want that money taxed as dividends or capital.

Lots of jargon there to get your head around so let’s try to explain the difference.

Dividend or Capital Treatment?

When you take money out of your limited company – you pay tax on it.  You could take the money out as dividends, as you probably have done over the years you have had a limited company, and if you do this you will be taxed as normal as having received dividends from your company.  Dividends are taxed at your highest marginal tax rate, so either at 7.5% or 32.5% depending on your other income in the year.

When you close the company though – the final payment to you can be treated as you selling your shares in the company and this is the “capital” option.  This money is still taxed, but it is taxed under capital gains tax rules rather than income tax rules and you are treated as having made a capital gain on your shares. You may have bought your 100 shares in your company when you set it up for £100, and now you are selling them for £x.  The difference is a capital gain.

You may prefer to take this treatment for 2 reasons:

  1. Everyone has a capital gain annual exemption (currently £12,300) so you will not pay tax on the first £12,300 of your gain. If there are 2 shareholders in the company, then each will have their own exempt amount.
  2. If your gain is more than your annual exemption, it is possibly that you will only pay tax at 10% on the rest of the gain, due to another tax break called Business Asset Disposal Relief (AKA entrepreneur’s relief)

The “capital” route is often therefore the preferred option as potentially being more tax efficient.

Striking off or MVL?

So what is the difference between the 2 options and why would I choose one over the other?

Striking off is the simplest option.

However, this option is only available if:

  • The company has not traded in the last 3 months
  • The company has not been threatened with liquidation
  • It has no formal agreements with its creditors – eg a creditors voluntary arrangement

The company will also only be able to get the “capital” treatment above, where it wants to extract funds of less than £25,000.

The striking off process itself is fairly simple – you apply to Companies House who will then publish a notice that you applied to be struck off.  After 2 months, if there have been no objections then the company will cease to exist.

You also have to inform anyone who maybe affected by the company’s closure (employees, debtors etc) within 7 days of sending the notice in.

It should also be noted that the directors can be held personally liable if they apply to strike off a company without paying off all its debts.

Members Voluntary Liquidation:

A MVL can be used where it is beneficial to have capital treatment, but you need to extract more than £25,000 on closure.

You need to appoint a formal liquidator to complete this process for you which will incur costs.  However, it may well be that the tax benefits outweigh the costs.

To complete a MVL, the directors must make a declaration of solvency, stating that the company is able to pay all its debts.

The liquidator takes control of the winding up of the company, at which point the directors cease being able to act on behalf of the company.

What if the company is Insolvent?

If the company is insolvent (eg it cannot pay all its bills) – then you cannot use the 2 options above.

You will need to appoint a liquidator to assist with closing down the company and put it into liquidation.  In this situation the interests of the creditor rank above those of the directors and shareholders – eg any money that is available will go to pay HMRC and your other creditors before repaying you any money you have put into the company.

Liquidating a company is a complex process and as such, generally is not a cheap option either, which is incredibly hard when the reason you are closing the company is that it is struggling.

It is always a good idea to take professional advice before you get to this position, who will be able to help you with any other options that may be available.

Closing a limited company is therefore more complicated and more expensive than closing a sole trader business. This blog only aims to give you an overview of the options available to you.

You need to take professional advice if you are thinking about closing your company to ensure it is done properly and in the best way to suit your individual needs.

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