The government has made it clear that furlough is only to be used by businesses suffering an extreme impact from coronavirus this December – not just due to normal Christmas slowdowns.
Experts have warned businesses that using the furlough scheme to save money over Christmas is not what it has been designed for.
Dealers should not think they can ‘simply lock up their dealership and go on holiday for a week’ while furloughing the workforce, warn motor trade legal advisers Lawgistics.
There has been confusion among some car dealers about what circumstances they are allowed to make use of the extended furlough scheme and what they’ll have to demonstrate to HMRC.
Lawgistics director Joel Combes said: ‘The government has updated their guidance and while it was obvious to some, they have now clarified it in writing.
‘Furlough is only in place for companies which are being affected by coronavirus.
‘The government has stated you should not place employees on furlough just because they are going to be on paid leave or you usually do less business over the festive period.’
He added that many businesses in the motor trade experience dips in sales over the festive period but ‘the usual drop’ in sales does not warrant employers using the furlough scheme.
Employment expert Kiril Moskovchuk from Lawgistics added: ‘The guidance says you should not put employees on furlough “if you usually do less business over the festive period”. The emphasis is on “usually”.
‘If the business has been affected considerably more than what would be a seasonal lull, I would say you can put your employees on furlough.
‘But the business must be able to show the impact: slump in orders, considerable deficit on P&L accounts, etc.’
In an update, accountants ASE Global said it was clear that furloughing staff over Christmas was ‘not permitted’.
The firm said: ‘These new rules are significant for all employers and this announcement bears all the hallmarks of an HMRC announcement which is vague enough to give their inspectors significant scope to argue for furlough payment clawbacks in the future.
‘It is clear that HMRC have recognised that many businesses will close for up to two weeks at Christmas notwithstanding Covid and that consequently furlough monies may have been paid for non-Covid reasons.
‘Proving that Covid was the reason why employees were furloughed now when December sales levels are always lower could cause a significant debate with HMRC in the future.’
Both Lawgistics and ASE warn that HMRC is likely to challenge December furlough payments and advised businesses to only claim where they believe they can prove that if staff were at work, activity would have been reduced by Covid. What sort of drop they’ll need to show is still unclear.
Moskovchuk added: ‘A dealer certainly should not be thinking that he can simply lock up his dealership and go away for a week’s holiday. I would say tread with extreme caution.’
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