One of the many dreadful things visited upon us by Coronavirus has been hit to the economy, affecting both businesses and individuals. Earlier in the year in the middle of the first wave the BBC reported how the virus sent shockwave through the finances of millions of people in the UK, and they used the latest ONS figures to show the impact on particular groups,and the impact on jobs and money. At around the same time Personnel Today was asking how HR can help employees with the financial impact of coronavirus. They point out how personal debt was a serious issue before the crisis started and how the pandemic has made the problem even worse. That was in the middle of the summer, before the second wave hit, so no doubt the situation is even bleaker now. The article consider ways that employers can help and, top of the list, is establishing some formal procedures to provide assistance to employees with money worries. The research on that, which they cite, shows that whilst almost every single employer was aware that some of their workers were experiencing persistent money worries, as many as 4 in 10 had no formal procedures in place to support those same individuals.
Since then we have had several more months of the pandemic to endure and,from what we have seen from our own client base, that number appears to be rising as more employers, especially large employers, are putting formal procedures in place. We notice, going back to the Personnel Today article, it describes the help as amounting to debt counselling services for employees, signposting to debt charities and workplace finance solutions. But there is another option, and it is one we are currently helping a number of clients with, namely setting up an employee benevolent fund, or hardship fund, designed to help specific categories of beneficiaries who are facing increased financial hardship as a result of the pandemic, for example, employees, former employees, pensioners and their families and dependants. It’s not a new idea - there are around 3,000 benevolent funds currently operating in the UK of which the vast majority are charities, although there are alternatives. However, if you are going to go down this route be aware there are lots of issues to consider- employment law, consumer credit and, of course, tax. To explain, on the line, Chris Thomas:
Chris Thomas: “We've seen a number of clients over sort of recent weeks and months, looking at how they can provide support to employees who perhaps are struggling financially due to the pandemic and the aftermath of it. That might be because they've been on furlough or they've got reduced salary or perhaps their partner has lost their job and therefore they're struggling because they've got reduced household income, so a number of employers are thinking about how they could support employees in that situation. From our point of view, I think that whilst that's a great thing to be doing, there are a number of issues that need to be thought about before you put in place that support so you avoid any unexpected tax implications, but also actually other implications from an employment perspective and even consumer credit issues which can which can arise. So I suppose the first question is what form would, or should, a benevolent or hardship fund take? There are a number of options there. So, on a very simple level, it could just involve making grants on an ad hoc basis. You might want a more formalised scheme, perhaps with some sort of criteria under which employees can apply. You might want to think about loans rather than simple outright grants. If you're looking at something that's perhaps a bit of a longer term proposition, rather than just a sort of a short term response to the pandemic, you could consider setting up a charity which has the benefit of providing benefits more tax efficiently than the other routes do and is particularly suitable, I guess, if this is something you can you want to be doing as a longer term objective You could even think about using an existing Employee Benefit Trust if you've got a surplus cash available in it. So there are a number of ways in which this could be done but the key thing in any case is to think about what the tax consequence will be. So if it's a simple cash grant that's going to be fully taxable, fully NI-able. If it's a loan then usually that will be tax neutral because there's an exemption from the benefit-in-kind-charge if the loan is under £10,000, but you just need to be a little bit careful, particularly if the loan is waived, that could have tax complicated consequences. The other thing about loans is it can get you into consumer credit problems, which is obviously not a tax issue but it is something we're aware of from discussion with colleagues - that can be quite complicated and involve getting authorisations if you don't have them, so it may not be something you want to kind of go with in practice. I mentioned setting up a charity as a possible option if it's a longer term scheme and, as I said, the key advantage to that is it should then be possible to get support to employees without any tax liability, which obviously is good. It can also have optical advantages and it also allows for other employees to be able to contribute to it if that's something that you might want to do as part of your charitable giving proposition. On the other hand, it does involve some additional governance considerations, some extra legal steps, you do have to register with The Charity Commission and there is a process and some additional considerations would have to be thought about, although it might be possible to start providing benefit spending getting the charity actually formally registered, if you wanted to do that, but that's a little bit more complicated, but again it's something that we have looked at with some clients. So as I say,there's a whole menu of things that you could do and it's very much a question of what your priorities are, how simply you want to keep, but it's something, as I say, that we have been helping clients with quite a bit. Just one final point to note is that we are seeing, in some cases, people wanting to make payments to family members of employees who are deceased, whether in relation to the COVID-19 or the other reasons. Just a note of caution that if you're doing that as an ad hoc thing, i.e. not under a tax-approved death in service scheme, and insurance-backed scheme, if you're just doing an ad hoc basis that is likely, unfortunately, to have tax implications so just be aware of that and seek advice before committing or going ahead.”
Setting up an employee benevolent fund in the UK is one of a number of tax articles Chris has written for Outlaw in recent months. You can find all of them on the Outlaw website.