The Coronavirus Job Retention Scheme (the “Scheme”) was announced on 20 March 2020 and opened to applications on 20 April 2020. By 23 April 2020 it had received 512,000 claims in respect of 3.8 million furloughed employees. However, a great deal of uncertainty remains around the application of the Scheme to businesses in the oil and gas sector.
Businesses in the sector are once again facing extremely challenging times due to the low oil price. A myriad of factors impact the price of oil but the drastic drop in demand as a result of the measures put in place to slow the spread of coronavirus will, at least in part, have contributed to the sub $20 per barrel prices we have seen of late. But does this mean that employers in the sector will be able to access funds under the Scheme?
The HMRC Guidance for Businesses (last updated on 23 April 2020) states that employers can furlough employees and apply under the Scheme if their “operations have been severely affected by coronavirus“. Meanwhile the Treasury Direction made on 15 April 2020 (which is not entirely consistent with the Guidance in parts) refers to the instruction to furloughed employees to cease work having been given “by reason of circumstances arising as a result of coronavirus or coronavirus disease“. No further guidance has been produced so, regrettably, we will have to wait to see just how broadly HMRC will interpret these concepts.
With the low oil price comes the cancellation of existing projects and future activity being postponed, often indefinitely. Many employers in the sector are, therefore, grappling with whether to furlough employees now, with the possibility that they will still have to make them redundant later or to move straight to redundancies. These are not simple decisions to make. The risks of getting it wrong potentially include HMRC finding it an abuse of the Scheme for an employer to have made an application in respect of individuals it knew it would have no work for at the end of the furlough period (which could lead to the grant having to be repaid); and the Employment Tribunal finding that redundancy dismissals were unfair if an employer who could have accessed the Scheme failed to do so or did not, at least, consider using it.
Employers in the sector rely on casual workers and contractors to give them the flexibility to scale their workforces as required. The Scheme applies to individuals who are subject to PAYE irrespective of the type of contract they have (e.g. full-time, part-time, agency, flexible, zero-hour) and the HMRC Guidance is clear that casual workers are covered. However, if an application made under the Scheme is to include casual workers, the employer must have furloughed them because of coronavirus. Some rather complicated calculations will also be required given the amounts these workers earn vary. Where a casual worker has not been furloughed but is not being given any work by their employer, they should not be included in a claim under the Scheme.
Contractors who have had their engagements terminated and who provide services via their own personal service companies may be covered by the Scheme if they are an employee of their personal service company and are furloughed because of coronavirus. However, these individuals often rely on taking dividends to boost the relatively low salaries they take, and dividends are not covered by the Scheme. As a result, claims by personal service companies may not provide much financial support to contractors.
One practical issue is that an employer who applies under the Scheme must have a UK bank account in order that it can take receipt of the grant monies. We understand that HMRC is looking at this but in the meantime, it will be problematic for UK employers who only have offshore bank accounts.
With the Scheme set to run until 30 June 2020, early consideration of these issues would be most welcomed by the sector.