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The first phase of the COVID-19 response was characterised by significant and rapid changes. While the pandemic and the government’s response continues to evolve, many believe the UK is coming out of this initial ‘response’ phase of COVID-19.
The next phase will undoubtedly bring uncertainty and disruption, however it will also present an opportunity for organisations to reflect and plan for ‘the new normal’.
So, as your business begins to prepare for the ‘recovery’ phase of the crisis, we’ve laid out four key tax and legal considerations for your people and the workplace.
1. Creating a ‘New’ Working Environment
As working from home went from optional to mandatory overnight, many (as they were able) adapted quickly to remain productive. However, as remote working becomes the new normal, both businesses and employees are looking to find solutions for longer-term at-home working.
Employers have always been able to provide equipment for home working, provided it’s available to all on equal terms, it’s returned at the end of its use, and any personal use is incidental.
What’s changed since COVID-19, is that previously, reimbursing an employee for something they bought for home use would have been a taxable benefit. However, HMRC have introduced a new concession; if you now reimburse them, it won’t be a taxable benefit and it doesn’t need to be returned at the end of the period. This exemption has been backdated to the 16 March and applies to the end of the current tax year.
2. Innovation in Reward
Is cash still king?
As we move towards the recovery phase of the pandemic, companies are doing what they need to do to protect their business. Many are still cash constrained and need to reduce costs in one way or another. As your business works through the options that are best for you, there are a couple of key tax considerations.
If you choose to reduce pay, be sure that this is done in a way that the individual is not still taxed on that pay. This may sound obvious, but the employee should enter into a documented waiver over the right to that pay before they become entitled to it. Same for bonus payments and share rewards, particularly if things are being waived, to ensure that they are not still taxed on it.
If you’re thinking about what you can do to replace salary and bonuses, one approach some are taking is options; giving employees benefits from the value of the longer-term growth of the business, and avoiding a substantial upfront cash cost. If this applies to you, then it’s important to consider the rules of ‘optional remuneration arrangements’. We cover considerations for employee share schemes and management incentives in more detail below.
A different kind of reward package
During this time, many are thinking innovatively about the types of benefits they can provide in order to retain their company culture, improve employee engagement and maintain a sense of belonging while working remotely. Ideas range from regular pizza evenings (where pizza is sent to team members for a Zoom catch up), fresh fruit and veg boxes, cakes, team games, branded materials for the home office, and online activities like happy hour and quizzes. Just remember to think about the tax consequences, because these could be taxable benefits.
You’re probably familiar with the trivial benefits rules on items which are provided. If it’s not a reward for services, if it’s not cash, and if it’s being given fairly across everybody then you can provide a trivial benefit in value of up to around £50. Be careful in your approach, however. Take pizza, for example, you couldn’t have your employees order their own and reimburse them. That would be cash. You could instead order the pizza to be delivered to people.
3. Employee Share Schemes and Management Incentives
When it comes to employee share schemes, there are a number of practical and technical things to consider, which are now more relevant than they’ve ever been before.
Creating a sense of ownership
In the environment we find ourselves in - with employees working remotely and employers needing to create a sense of involvement and engagement to drive the business forward - many see the benefit of creating a shared sense of ownership by offering share options.
If you want to make the best of such a plan, consider carefully how you communicate the benefits.
Resetting management incentives
Has the furlough arrangement broken the working time requirement for EMI enterprise management incentive share options? Normally someone would have to work at least 25 hours a week, or 75% of their working time, to qualify. While we don’t have a concrete answer on this from the government yet, we are expecting a concession from HMRC.
As we move through this recovery phase towards, hopefully, thriving in the future, consider how you deal with management incentives, ensuring you’ve got the right people in place to drive the business forward. The senior team could well be a different group of people to those who were participating in these arrangements before the crisis, therefore the entry point in which they begin to participate, and the value, might need to change.
The form might also need to change. A lot was learned back in 2008 when we had to reset a lot of management incentive arrangements. For now, there are different tools available, but you do need to tread carefully to make sure that you don’t have any unintended commercial tax or accounting consequences. Tax valuations are also going to be a key part of this process, ensuring that if you make changes or you issue new instruments, you don’t create unintended tax charges as a result of that.
4. Creating a COVID-19 Secure Workplace
As you continue to look after your employees both during and as we emerge from lockdown - keeping them safe, happy, and engaged while working remotely - it’s never too early to start navigating plans for a return to the office.
These preparations, first and foremost, should start with what is best for your people. This may sound like common sense, but it’s worth reiterating. Most of us will have a diverse workforce, with a broad range of needs. Some will have childcare responsibilities and need to continue working from home. Others may be working in isolated or cramped environments and prefer to return to the office. Let your people decide what they think is best and safest for them.
As people return to the office, you’ll of course need to make it a safe environment for all employees. Taking Government advice, implement things like staggered start times, fewer people in the lifts, one-way systems round the office, packaged food in the canteen, additional hand sanitizer and cleaning more frequently. However, it’s important to keep a record and an electronic trail of your risk assessment in case something does go wrong. There is personal liability for senior members of your organisation, so make sure the assessment looks at all the changes you’ve made. Continue to monitor these changes and have your people to confirm that they’re aware of them and are complying.
Finally, an update on the UK Coronavirus Job Retention Scheme
Lastly, here are five key points from recent announcements made by the Chancellor.
1. There are no immediate changes to the rules of this scheme. It’s business as usual for June and July.
2. From 1 July you will only be able to furlough people that you have previously furloughed for at least three weeks. This means that any employees that you want to furlough beyond the end of June must have been furloughed from 10 June at the latest. We are going to see a fixed constituency going forward and anybody who hasn’t been furloughed by 10 June in accordance with the scheme, that’s the end of that (with an exception for employees who are returning from maternity/other family leave and haven’t been furloughed previously).
3. From August to October, we will start to see phased contributions from employers who still want to take advantage of the scheme, sharing the cost with the taxpayer.
4. From the beginning of July, for the first time, it will be possible to have a combination of part-time furlough and part-time working. Up until now this has been very binary; if someone wants to take advantage of this scheme, they cannot work. The idea behind this part-time arrangement is to gradually phase people back into work. You will need to get a written agreement with the people you’re bringing back in a part-time way, and my advice is to request a general consent from employees if you can, allowing you to bring people back in and out of furlough at any time until the end of the scheme at the end of October.
5. From July, you won’t be able to make a claim under the job retention scheme for any greater number of employees than you’ve already made a single claim for. This is how, moving forward, the government is going to try and limit increases to the number of people taking advantage of the scheme.
Arran is a partner in Deloitte’s reward practice, advising companies on all aspects of reward from overall reward strategy, through executive pay, long term incentives and all employee incentive arrangements. Arran has a particular focus on working with management teams to implement equity based incentive arrangements, covering design, tax, legal and accounting aspects. Arran works with a wide range of companies that include a large number of high growth technology businesses, supporting them from the early phases of the business through investment rounds and to eventual exit, dealing with the challenges that arise as businesses experience rapid growth and change.
Andrew is the Head of Employment Law for Deloitte Legal. Deloitte Legal combines market leading lawyers, consultants and technology experts to provide clients with new solutions to legal problems. Andrew began his legal career at Freshfields Bruckhaus Deringer and served as the Managing Partner of Travers Smith before joining Deloitte Legal. Andrew’s UK and international experience spans a wide range of sectors, advising employers on all aspects of employment law and employment relations. Andrew is a Solicitor of the Supreme Court of England and Wales and a member of The Law Society.