HMRC has challenged another Coronavirus Job Retention Scheme (CJRS) claim regarding dividend pay. How much sway does parliament have over these issues?
The Coronavirus Job Retention Scheme (CJRS) was quite intricate, to say the least. However, the fundamental principles were straightforward. Put simply, if an employee was on a PAYE scheme and a full payment submission (FPS) had been sent to HMRC by the relevant date, the UK government would “pay” 80% of the employee’s salary, up to £2,500 per month, reclaimable by the employer as a support payment. Naturally, the CJRS underwent changes during its existence, as did legislation and guidance.
Apart from ensuring compliance with the relevant date, the perennial question has been how much the employer could reclaim from the UK government. This was determined by the evolving law and the ever-changing guidance based on the salary reported on the FPS received on or before the relevant date.
The CJRS (furlough) incurred significant costs for the UK government, and rightfully so; HMRC was tasked with ensuring accurate repayments to employers. At the end of 2023, the First-tier Tribunal (FTT) heard a case between John Tann (representing employee and director Graham Smith) and HMRC. HMRC contended that the support payment was based on the incorrect (and higher) salary.
Support Payment Calculations Graham Smith, an employee and director, received a salary of £600 per month via PAYE, reported through the FPS. HMRC claimed that £600 should have been used in any CJRS support payment calculations.
However, Smith also received £2,500 monthly in dividends. After observing a House of Commons debate featuring Rishi Sunak and Ed Davey, his accountant (John Tann) suggested that dividends should be treated as an increase to salary. Real Time Information (RTI) submissions post the Parliamentary debate revealed that Smith was paid £2,500 per month. This allowed the CJRS reclaim to be 80% of this value (£2,000 per month).
Director Employees The FTT acknowledged that the then-Chancellor of the Exchequer was questioned by Davey about the scheme being unfair to directors who paid themselves a small salary and dividends. This was interpreted as implying that employees like Smith should use the CJRS. Therefore, the support payment reclaim was made based on the cap of £2,500 per month at the percentage allowed at the time (80% reducing to 70% and so on).
However, it remains unclear if the Parliamentary debate was ever about director employees paid in a combination of PAYE earnings and dividends. Despite efforts to search through documented transcripts of conversations between Sunak and Davey, the conversation accepted by the FTT cannot be found. Although, on 27 April 2020, Davey did speak in a House of Commons debate about coronavirus support schemes, specifically for the self-employed.
The CJRS was distinct from the SEISS! The only other Commons debate where Sunak and Davey were present was on 12 May 2020, discussing the opening of the SEISS. Perhaps the closest discussion about an employee paid in a mixture of PAYE income and dividends was in response to a question from Caroline Lucas. However, Sunak explicitly stated that individuals could “avail themselves of the coronavirus job retention scheme for the PAYE part of their income already.”
So, what Commons debate the FTT accepted remains unclear.
Dividend Pay In another Commons debate on Tuesday 16 June 2020, Labour MP Dr Rupa Huq mentioned to the then-financial secretary to the Treasury Jesse Norman her correspondence with the Chancellor of the Exchequer (then Sunak) about “people on dividend pay” and other “holes” in the CJRS safety net. There was no reply to this question, explaining why it cannot be found when searching the UK Parliament website.
Issues for Employers This case once again underscores the issues, more of which will likely emerge in the years to come.
What is the relevant date? What were the earnings on the FPS? What did the law say at the time? But, more challenging, what did the guidance say at the time? Remember, guidance is not law. However, the overarching message is that just because something is said in the House of Commons does not necessarily mean it should be interpreted as the law. In fact, I believe that what was said between Davey and Sunak was misinterpreted, hence the FTT finding for HMRC and against the employer – something I can comprehend.
The take away should always be: that which is written in the legislation always takes precedence over anything spoken by a politician.
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