Have Your Clients Checked Their Furlough Claims Recently?
It’s about spotting the pitfalls
From the 1st of July, the Government’s Coronavirus Job Retention Scheme changed to include part-furlough arrangements. This is presenting a number of challenges, so as a trusted business accountant it’s well worth knowing where the (likely very costly) pitfalls lie for your clients.
What are employers potentially getting wrong?
There are a few key things here that could cost your clients some serious money if they get them wrong. They include:
1. Not fully understanding the rules around the Flexible Furlough Scheme (FFS)
Since the beginning of July, employers have been able to ‘flexibly furlough’ their employees. This means that staff may be brought back to work for part of the week, whilst being furloughed for the rest.
The benefit of this is that businesses can gradually reinstate their workforce as more and more work comes in. For reference, the government hasn’t stipulated any set maximum or minimum hours that an employee must do.
Who is eligible?
Only employees who have been furloughed for at least three consecutive weeks between the 1st March and the 30th June this year can be put on flexible furlough. The latest that a staff member could be put on furlough was the 10th June, unless they have been away on maternity or paternity leave.
It is important to note here that employees who started a new furlough period before the 1st July must have undertaken three consecutive weeks of furlough before they can be considered for flexible furlough.
Find out more on the government website’s flexible furlough page
2. Claiming for the wrong number of employee working hours
It’s down to employers to discuss their requirements with their employers and to confirm their hours of work in writing.
If your client is looking to claim in respect of employees who are flexibly furloughed, it is essential that they don’t put forward their claim until they know exactly how many hours each employee will have worked. Otherwise, their claim could end up being inaccurate and some of the grant will therefore need to be paid back at a later time.
Again, more on this can be found on the flexible furlough page.
3. Inadvertently claiming for the wrong things
This one is likely to be a common one, where employers accidently end up over-claiming.
A company applies through the CJRS but their application includes the full cost of employer’s National Insurance Contributions. This is incorrect and could lead to overpayment due to the fact that they may already have received a reduction to their National Insurance Contributions via the government’s Employment Allowance.
What’s the Employment Allowance?
The Employment Allowance means that businesses can pay less than £100,000 in National Insurance Contributions thus reducing their annual National Insurance liability by as much as £4,000. Many employers won’t in fact realise this deduction is applied, leading them to claim twice under the CJRS.
There are also certain other types of expenditure that can’t be claimed for using the CJRS. This would be things like company cars, tips, healthcare benefits, commission payments or discretionary bonuses.
The cost of getting it wrong is likely to be high
HMRC has already made it clear it will selectively, and randomly, audit any CJRS claims as it sees fit. For any claims that are deemed fraudulent, dishonest or inaccurate - however unintentional - HMRC also reserves the right to withhold payment or force any money to be paid back. The cost of this would have to be born entirely by your client’s company; but they’d still have to pay staff wages and anything owed is not allowed to be clawed back from the employees.
In some circumstances criminal action may be taken. Not only could any of these measures have a hugely negative effect on your clients, but also on your firm’s relationship with them.
Don’t forget to prompt clients about R&D Tax Credits
Any company, any size, any sector - this is an incredibly generous tax relief designed to encourage growth and innovation. So if any of your clients have recently undergone work such as creating a new product, service or process, or upgrading something that already exists, a lucrative claim is likely.
R&D Tax Credits in brief
The UK government has long looked to incentivise company innovation and growth as a way to boost the economy through tax take and jobs. It therefore launched the R&D Tax Credits scheme back in the early 2000s, which now offers a relief against money spent on R&D projects.
It works by offering either a reduction in a company’s Corporation Tax, or a cash lump sum for those who made a loss.
The scheme is divided into two branches - the SME branch and RDEC. Which one your client should claim under largely depends on a number of factors, including their employee head count, turnover and whether they’ve previously received state aid. For information, we would recommend taking a look at our recent blog: R&D Tax Credits: What's The Difference Between The SME Scheme And RDEC?
Essentially the SME scheme is much more generous, offering up to 33 pence back per £1 of R&D expenditure. However, although the RDEC scheme (primarily aimed at larger companies) is less generous at 12% of eligible costs, claim values tend to be much higher.
And the best bit?
The real beauty of R&D Tax Credits is not only is the relief open to any UK company, the scope of projects and costs is incredibly broad. Everything from employers NIC and pension contributions to staff wages to overheads and materials can be included, with money clawed back used for anything the company decides.
To learn more about the scheme, take a look at our R&D Tax Credits page.
Contact the R&D tax experts at Myriad Associates
If you would like to discuss anything related to R&D tax relief and how you can help your clients make a successful, fully optimised claim then do get in touch today. Our team has worked with accountancy firms up and down the country to offer the most comprehensive R&D tax and grant funding service and we’ll be pleased to advise you.