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CJRS employees and Associated Companies

CJRS at Company A, and then accept a new contract at company B when they have same director

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Can someone explain their interpretation of this CJRS rule 6.2 below.

We have an employee who was furloughed at Company A. Then the director of Company A offered them a new employment contract at Company B whilst they were on Furlough.

There there is a link between both companies....

1. The director, who also owns the shares of both Companies. 

 Is the employee still eligible for CJRS at Company A whilst working at Company B under a seperate contract. Looking at the legislation below, we believe the employee is working for Company B under a new employee relationship with a new contract, therefore the below CJRS rule does not apply because the Company A employee has not been told to work for free or under secondment to Company B by Company A.

The legislation is quite specific as it refers to it as if the "Employee works for ", and that word employee has a legal definition in UK law. Our view is part of the legislation was meant to stop employers taking furloughed employees and asking them to work for free at another business they control during their furlough time.

Here is the section from the cjrs 2020 Act.

6.2 - An employee has not ceased all work for an employer if the employee works for a person connected with the employer (see paragraph 13.4) or otherwise works indirectly for the employer.

 

Replies (28)

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By Paul Crowley
22nd Oct 2021 17:48

Was company B paying less than company A would have done?
It may not be a duck, but it walks with a waddle and quacks

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By gillybean04
22nd Oct 2021 18:49

I disagree with your interpretation. The direction makes no distinction between paid and unpaid work for connected parties. Therefore, in my opinion, it is wrong to infer that any such distinction exists.

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By kulvinder
22nd Oct 2021 19:25

These are both paid jobs.

Company A paid the employee then put the employee on Furlough back in March 2020.

The employee started work for Company B Dec 2020, it pays less salary compared to Company A and it is for a different job.

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Replying to kulvinder:
Psycho
By Wilson Philips
22nd Oct 2021 19:38

If employee had not been furloughed and was still working for A under what I assume is a full-time contract would he also have been employed by B?

Put it another way, would his contract have allowed him to work for another employer - whether on furlough or not?

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Replying to Wilson Philips:
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By kulvinder
22nd Oct 2021 19:52

Yes if they were not Furloughed they would work for both companies and be paid by both.

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Replying to kulvinder:
Psycho
By Wilson Philips
22nd Oct 2021 20:08

Full-time?

But, regardless, I am with the others - CJRS should not have been claimed while employee was working for B.

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Replying to Wilson Philips:
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By kulvinder
22nd Oct 2021 20:19

There might be a moral obligation to not pay the Furlough, but what is the position according to the legislation.

If the director didn't Furlough the Employee from Company A, then Company A would have terminated his employment since Company A stopped trading for the period. Then maybe he wouldn't have got the job at Company B later in the year because he would have lost contact with his previous employer or found another job.

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Replying to kulvinder:
Psycho
By Wilson Philips
22nd Oct 2021 20:25

If you want confirmation of the legal position then you need to ask the question on a legal forum - this is not a tax or accountancy issue. Having said that, such tax etc advisers are used to interpreting legislation, and the words as they are written lead (IMO) to no conclusion other than that CJRS should not have been claimed.

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By Matrix
22nd Oct 2021 19:49

But they are connected under s1122(2)(a)CTA* so the employee was not a furloughed employee. Why is this only coming out now?

* you said the Director owns the shares of both companies so I assume you wouldn’t be asking if he didn’t control both companies

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Replying to Matrix:
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By kulvinder
22nd Oct 2021 20:26

Yes the companies are connected, by the Director and Share ownership only, but the employee had two separate contracts for employment, one with each company.

CJRS 6.2 states "if the employee works for a person connected with" .....

Whilst under UK law an employee "is someone who works under an employment contract" that is a one to one relationship with a single employer.

Therefore my interpretation of legislation is that your not the employee of the employer that put you on furlough when you start working at Company B, because Company B gave you a new contract for your employment. The contract states the role which is different to what was being performed at Company A and the salary is lower.

The T&Cs of the Company A contract cannot be enforced against Company B just because the companies are linked by the director.

The 1st employment contract specifies the parties to it and it says Company A and the employed individual.

I think 6.2 was meant to stop a furloughed employee being asked by the director/owner to work at their other business during their Furlough period without being protected by an employment contract whilst being paid 80% of salary under CJRS, along with maybe an informal top up by the director.

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Replying to kulvinder:
Psycho
By Wilson Philips
22nd Oct 2021 20:16

If the employee is to be considered not an employee of A whilst working for B then A had no business claiming CJRS.

It would need an employment lawyer to confirm but I consider that it would be reasonable to expand your above words to “An employee is someone who works, or is on furlough, under an employment contract"

“Straws, grasping at” springs to mind.

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Replying to Wilson Philips:
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By Paul Crowley
22nd Oct 2021 21:41

+1
This is exactly what was intended to be stopped

A bit like a director not being allowed to be both furloughed and starting to be self-employed supplying services to his own company.

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Replying to kulvinder:
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By Hugo Fair
22nd Oct 2021 21:46

You're confusing several aspects here:

1. A furloughed employee (of company A) remains an employee of that company during furlough - that is the whole point of furlough (to protect the employment from being ceased.

2. Whether a furloughed employee (of company A) was allowed (under the terms of CJRS) to undertake paid employment with a different company at the same time as that furlough? Which, crazy though it may seem, was allowed.

3. Whether company A was allowed to claim CJRS for that furloughed employee despite that other employment? To which the answer is generally 'Yes' ... but as per the extract from OP, NOT in certain circumstances.

And it appears from what we've been told that the circumstances of OP's client would have precluded any CJRS claim for that (or similar) employees being valid.

[I have no idea how your paragraphs 3 - 6 are meant to be relevant. I don't disagree with anything you say in them but, as per my points above, so what?]

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Replying to Hugo Fair:
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By gillybean04
22nd Oct 2021 23:44

I believe they are the ex-director of one (possibly both) of the companies, and that the current director may be their brother or other family member.

With how obscure the interpretation they're relying on is, there had to be a personal interest at stake somehow.

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By kulvinder
24th Oct 2021 09:50

Having review the cjrs direction, to check the legal definition of an employee and employer used by that direction in section 13.1. It seems the employee is eligible for furlough at Company A whilst they were employed at Company B even though the companies are connected, the employee had two employment contracts. Therefore Company A employee was working under a different contract when at Company B. The company A employee (comprising of individual, Company A and job contract) cannot be the same entity working at Company B.

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Replying to kulvinder:
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By Wanderer
24th Oct 2021 10:12

You need to get your thinking straight.
The directions have nothing whatsoever to do with eligibility for furlough and whether an employee can do other work whilst furloughed. Those matters are purely connected with the contracts & agreements between the employers & employees.
Once you have sorted that in your mind you then look at the directions to see if the employers can claim back part of the employment costs under the Coronavirus Job Retention Scheme whilst the employees are furloughed.

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Replying to kulvinder:
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By Wanderer
24th Oct 2021 10:21

Your references to 13.1 then trying to interpret them in a particular way are a complete red herring & look like you are grasping at straws to justify what has happened in a particular situation.
Concentrate on 13.4.

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Replying to Wanderer:
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By kulvinder
24th Oct 2021 11:08

It is how the section 13.1 and 13.4 are interpreted for section 6.2. That will determine whether the employer in this case company A has correctly made a furlough claim.

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Replying to kulvinder:
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By Wanderer
24th Oct 2021 11:25

Like I said you are grasping at straws.
Try looking back from 13.4:-

13.4 Are the two companies connected per 13.4(b)? -> Yes
6.2 Has the employee ceased work for company A? -> No because if they work for a connected company (company B) they are deemed not to have ceased work for company A.
6.1 Is the employee a furloughed employee? -> No because they are deemed to have not ceased to have worked for company A by virtue of the work for company B.
5. Can the costs incurred by company A be reclaimed under CJRS? -> No, 5. (1) (iii) states they must be a furloughed employee per the definition of 6.1.

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Replying to kulvinder:
Psycho
By Wilson Philips
24th Oct 2021 11:24

You are convincing no-one but yourself.

Is the individual an employee of A? Yes

Is the individual working for B? Yes

Are A and B connected? Yes

The Regulations make no mention of contracts so it doesn’t matter whether the individual is working under a single or separate contracts. Simple fact is that he is working for a company connected to his employer.

There is only one reasonable interpretation.

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By kulvinder
24th Oct 2021 11:37

Section 13.1 lists the definitions for the terms used throughout the cjrs. As 6.2 refers to employee we need the legal definition of what that is.

For employee it directs you to section 4 of ITEPA regulations and that says an employee is someone under a contract.

See below.....
“Employment” for the purposes of the employment income Parts
(1)In the employment income Parts “employment” includes in particular—
(a)any employment under a contract of service,
(b)any employment under a contract of apprenticeship, and
(c)any employment in the service of the Crown.
(2)In those Parts “employed”, “employee” and “employer” have corresponding meanings.

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Replying to kulvinder:
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By Wanderer
24th Oct 2021 11:48

You seem to have made your mind up that CJRS claims were correct for company A.

You asked for contributors interpretations. Every contributor to this thread, other than you, has said CJRS shouldn't have been claimed.

Not really sure why you bothered asking the question. As Wilson says "You are convincing no-one but yourself".

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Replying to Wanderer:
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By kulvinder
24th Oct 2021 12:11

I did initially reach a similar conclusion on my first read of 6.2.

However it is the meaning of the key terms like employee which need to be understood alongside other terms like employer and associated or linked companies companies before considering what the view should be.

The plain English CJRS guidelines said the employer cannot ask the employee to work for a linked company or indirectly for the employer. That is an interpretation of the rules for the public and is what conclusion I have reached after delving into the words the government used. Ofcourse there will be people that have closed one business and continued another during the pandemic, would they become ineligible to make a claim. This people are the ones who would have paid higher taxes than those in a regular 9 to 5 job.

Would that be fair?

The government already tried to abandon the self employed.

Consider this, IR35 rules were loosely applied for years, now those rules have been tightened and the ppl who would have gone the extra mile don't because there is no longer a tax advantage to do so. They paid less tax but wider society benefited more from their spending power in a better way than a government would be at doing this for you.
For instance spending on going out supporting jobs for teenagers going through college.

They have actually left employment accepting a slower lifestyle looking like an early retirement.

The result will be a reduction in productivity long term as permanent ppl are not motivated long term.

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Replying to kulvinder:
Psycho
By Wilson Philips
24th Oct 2021 12:13

Can you explain what point you are trying to make.

So the individual happens to be an employee, under separate contracts, for each of A and B. So what? Whether under contract or not, individual is, as a matter of fact, working for someone (B) that is connected with his employer (A).

It’s not a difficult concept.

As I said earlier, though, this is not really the right forum for your query. You need to speak to employment lawyers. It is not impossible that they might agree with you (I’d obviously be surprised if they did) but persistently setting out your own interpretation, without any authoritative support, is just wasting your and everyone else’s time.

With that, I’m done.

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By Wanderer
24th Oct 2021 16:27

Clearly not happy with the answers given here so has decided to opinion shop elsewhere:-
https://www.ukbusinessforums.co.uk/threads/cjrs-rules-interpretation.415...

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Replying to Wanderer:
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By Leywood
24th Oct 2021 16:36

So completely ignores several highly regarded professionals on here and now arguing with a 'Legend' (other forum's title) from an employment law and payroll specialist. What a fool.

Anyone done a google search, wonder if its the same person as the 1st hit?!

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Replying to Wanderer:
Psycho
By Wilson Philips
24th Oct 2021 17:21

At least I (we) can take some comfort in the fact that we now have an employment law specialist sharing my (our) analysis.

And looking at the twisted logic being applied in ‘that other place’ it is clear that the OP’s mind is quite jumbled and no amount of reasoned argument is going to convince him/her that s/he is wrong. It seems fairly clear that someone (s/he?) has fallen foul of the rules and s/he is looking (without success) for anything to get him/her out of the hole.

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By the_drookit_dug
24th Oct 2021 19:00

Absolutely no doubt about it, Company A should not have claimed CJRS.

No amount of wilful reading of the rules will change that.

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