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The Coronavirus Job Retention Scheme (Furlough) enabled employers to pay salaries of employees rather than making them redundant. It was Covid business help.

It enabled companies to receive from the government 80% of an employee’s wages subject to a maximum cap of £2,500 per month.

In the case of Bandstream Media and Corporate Communications Ltd v Revenue And Customs [2024] UKFTT 11 (TC) a company Director’s adviser observed a parliamentary debate in which Ed Davey illuminated the potential unfairness when a claim was made under the Furlough scheme. 

The issue was the effect of a director paid dividends and salary, as opposed to just salary and how they could claim on the CJRS.

Ed Davey Parliamentary Debate Does Not Sway Tax Tribunal

The debate resulted in Mr Davey being told that a director should make use of the scheme:

Mr Tann had watched a televised parliamentary debate concerning the introduction of the scheme. His evidence was, and we accept this, that when a question was asked of the Chancellor of the Exchequer by Ed Davey, about how directors who had previously been paying themselves by dividends and only a small salary, could make a claim under the scheme, he was told that they should make use of the scheme. This was in the context of Mr Davey suggesting that the scheme would generate unfairness to those who had previously remunerated themselves by way of dividend, compared with those who had remunerated themselves by way of salary… the Chancellor of the Exchequer in answering a question in Parliament from Mr Davey as to the unfairness of the lockdown to those directors who paid themselves by dividends, said that directors should “make use of the furlough system”; following the Chancellor’s advice, Mr Tann asked his client to increase Mr Smith’s salary to £30,000 per year from April 2020 to make use of the furlough system; his view the Chancellor had made an exception from the strict rules of the scheme for directors who had paid themselves by dividends.

Certain of the director, Graham Smith’s Furlough claims were based on a salary of £2,500 instead of £600 per month.

The Real Time Information (“RTI”) until 31 March 2020 was £600 per month. It is understood that thereafter relevant RTI submissions were based on a salary of £2,500 per month.

HMRC said the Furlough claim should have been based on £600 per month and then raised assessments based on paragraph 9 of schedule 16 of the Finance Act 2020.

Mr Tann acting for the taxpayer contested this position based on the RTI submissions after 30 March 2020:

His justification for this submission is, as set out above, that there needed to be a mechanism within the scheme to compensate for the unfairness, which was recognised in the televised parliamentary debate, which would prevent owner managers who had compensated themselves by way of dividend, being prejudiced compared with those owner managers who had previously compensated themselves by way of salary (the former being unable to claim support payments based on the amounts paid by dividend, whereas the latter would be able to claim based on an equivalent amount paid as salary).

The Tax Tribunal rejected the taxpayer’s submissions:

It is our view that the purpose of the legislation is, as submitted by HMRC, to cater for the situation which has been suggested by them, at [23] above. It was not intended to allow an employer, after the introduction of the scheme, to inflate an employee’s wages and thus, effectively, have the taxpayer underwrite an employee’s salary. This would drive a coach and horses through the legislation which was designed to fix an employee’s salary to that recorded on the latest RTI submission prior to 19 March 2020. To interpret the legislation otherwise would lead to an injustice…. Furthermore, notwithstanding the televised debates witnessed by Mr Tann, we cannot allow that to influence our interpretation of the clear language of the statutory provisions. We must look at the actual words used by the legislation and cannot (save in exceptional circumstances which do not apply here) consider the parliamentary debates which preceded the enactment of that legislation.

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Author: Elliot Green
Last Updated: May 20, 2024

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Disclaimer: Ed Davey Parliamentary Debate Does Not Sway Tax Tribunal

This page is not legal advice and is not to be relied upon as such. This article Ed Davey Parliamentary Debate Does Not Sway Tax Tribunal is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for reliance upon this post.

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