Coronavirus Job Retention Scheme

The Government announced that it will pay the lower of 80% of a ‘furloughed workers’ regular wage or £2,500 per month per employee plus the associated Employer NI contributions and the minimum automatic enrolment employer pension contributions (currently 3% on qualifying earnings) on that subsidised wage, for all UK employers if an employee would otherwise have been laid off due to the Covid-19 crisis.  Furlough is the equivalent of ‘lay off’, where employees have been asked to stop working due to the coronavirus, but have not been made redundant. 

The details of the scheme are now set out in legislation which was published on 15 April 2020 – The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Direction 

Who can claim? 

At present the Scheme is open to all UK businesses, small or large, charitable or non - profit and will be backdated to 1 March. 

You must have: 

  • Created and started a PAYE payroll scheme on or before 19 March 2020 

  • Enrolled for PAYE online 

  • A UK bank acount 

Employees you can claim for 

Employees must have been on their employer’s PAYE payroll on or before 19 March 2020 (previously 28 February 2020) and have been notified to HMRC on an RTI submission on or before 19 March 2020.  This means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 19 March 2020. 

Employees who were made redundant or stopped working for their employer after 28 February 2020 

Employees who were employed as of 28 February 2020 and on payroll (ie notified to HMRC on an RTI submission on or before 28 February 2020) and were made redundant or stopped working for their employer after that and prior to 19 March 2020, can also qualify for the scheme if the employer re-employs them and puts them on furlough.  Even if you did not re-employ former employees until after 19 March 2020, as long as the employee was on your payroll as at 28 February 2020 and had been notified to HMRC on an RTI submission (notifying payment) on or before 28 February 2020, can be put on furlough and qualify for the scheme. 

Of course, this is up to employers whether to furlough retrospectively, but is allowed. 

How will the scheme be administered? 

This salary subsidy will be administered and operated by HMRC through a new payment portal.  The new payment portal opened for applications on 20th April 2020. Tax agents who have Authorised Access permission will have access to the portal as well as Employers.  The earlier that you to apply to the Scheme, the earlier you are likely to receive payment.  The scheme was initially in place for a period of 3 months, however on 17 April the Chancellor announced that he had extended the scheme by a month to 30 June 2020. 

On 12th May 2020, the scheme was further extended to 31 July 2020 with no changes to the scheme, continuing to mean that employees on furlough aren’t allowed to carry out any work for their employer. However, the Chancellor has since announced that the scheme will be extended to 31st October 2020 with flexible furloughing being introduced from 1 July 2020.

Flexible Furloughing

On 29th May 2020, the Chancellor provided details of the flexibility in the scheme to allow employers to phase furloughed employees back to work. 

  • From 1 July, employers can bring back to work employees that have previously been furloughed for any amount of time and for any shift pattern, while still being able to claim CJRS grant for their normal hours not worked.

  • When claiming the CJRS grant for furloughed hours, employers will need to report and claim for a minimum period of one week. This is a minimum period and those claiming for longer periods such as 2 weekly or monthly cycles will still be able to do this.

  • Employers must agree with their employees any new flexible furloughing arrangement and confirm the agreement in writing. A copy of this written agreement must be kept for 5 years.

  • Employers will need to report hours worked and the usual hours an employee would be expected to work in a claim period. See below for further information.

  • It is a legislative requirement to report worked hours on payslips where pay varies by the hours worked, but you may wish to include furloughed hours for clarity to employees.

  • For worked hours, employees will be paid by their employers subject to their employment contract and employers will be responsible for paying the tax and NICs due on those amounts.

Payments will continue to be made as grants by HMRC and will be included as income in a business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles. 

Although the Government is encouraging employers to pay furloughed employees the balance of salary (up to 100%) they don’t have to. 

Closure to new Entrants from July

The scheme will close to new entrants from 30 June. 

  • This means that the final date by which an employer can furlough an employee for the first time will be the 10 June, in order for the current three-week furlough period to be completed by 30 June.

  • There are exceptions to this rule:-

    o   Employees returning from parental leave who had not been included in a claim up to 30 June.

    o   Employees who have been moved to a new PAYE scheme due to a scheme reorganisation after 10 June, but who had been in a claim under their previous PAYE scheme between 1 March 2020 and 30 June 2020.

    o   Employees transferred under TUPE rules into a business due to a change of ownership or a compulsory liquidation after 10 June 2020, but who has been in a claim under their previous PAYE scheme between 1 March 2020 and 30 June 2020.

    o   An employee who is a military reservist returning to work after a period of mobilisation after 10 June, even if you are furloughing them for the first time, as long as the employee was active on your PAYE and you submitted an RTI submission on or before 19 March 2020.

  • Employers will have until 31st July to make any claims in respect of the period to 30 June.

  • From 1 July the scheme will only be available to employers that have previously used the scheme in respect of employees they have previously furloughed.

  • From 1 July, claim periods will no longer be able to overlap months, employers who previously submitted claims with periods that overlapped calendar months will no longer be able to do this going forward. This is necessary to reflect the forthcoming changes to the scheme.

  • The number of employees an employer can claim for in any claim period cannot exceed the maximum number they have claimed for under any previous claim under the current CJRS.

  • Employers can continue to make claims in anticipation of an imminent payroll run, at the point payroll is run or after payroll has been run.

  • Employers will be able to make their first claim under the new scheme from 1 July.

Employer costs

  • June – employees on furlough are not allowed to carry out work for their employer.  Government will pay 80% of wages up to a cap of £2,500 as well as employer NI and pension contributions.

  • July – flexible furloughing introduced.  No minimum furlough period. The Government will pay 80% of wages up to a cap of £2,500 as well as employer NI and pension contributions for the hours the employee doesn’t work.  Employers will have to pay employees for the hours they work.

  • August - the Government will pay 80% of wages up to a cap of £2,500 and employers will pay ER NI and pension contributions for the hours the employee does not work.

  • September - the Government will pay 70% of wages up to a cap of £2,187.50 for the hours the employee does not work. Employers will
    pay     ER NI and pension contributions and 10% of wages to make up 80% total up to a cap of £2,500.

  • October - the Government will pay 60% of wages up to a cap of £1,875 for the hours the employee does not work. Employers will pay ER NI and pension contributions and 20% of wages to make up 80% total up to a
    cap of £2,500.

The cap will be proportional to the hours not worked.

Usual Hours

From 1 July 2020, employees can work and be furloughed in the same pay period, and even on the same day.  If employers want to take advantage of this flexibility, they will have to calculate all of the following for each employee:

  • His or her Usual hours

  • Actual hours worked

  • Furloughed hours

Usual hours are either:

  • Contracted hours for salaried employees, or

  • Based on a specific formula for zero hours or variably paid employees

Furloughed hours

To calculate an employee’s furloughed hours, deduct the actual hours worked from the usual hours.

Examples of how to calculate usual and furloughed hours are provided here.

Employers are expected to report the worked hours and the usual hours in the CJRS claim.

Steps to take:-

1.      Identify affected employees

Establish those employees who no longer have any work to do as a result of the coronavirus.

2.      Change the status of those employees

You will need to change the designation of the affected employees to ‘furloughed workers’ Firstly check your existing terms and conditions of employment to see whether you are able to vary the existing terms by simply notifying the affected employees.  If there is no such term, then you will need the agreement of your employees before the change can be implemented.  The agreement should be documented and signed by the employee. A record of this variation should be kept for 5 years. Remember changing the status of employees is subject to existing employment law.

Here’s a link to a template letter.

3.      Notify HMRC

You will require to submit information to HMRC about the employees who have been furloughed and their earnings through a new online portal.

If a director or shareholder of an owner managed company is operating a PAYE scheme and they are paid through payroll. then they will be covered for their salary by the Coronavirus Job Retention Scheme in the same way as employees.  A formal board minute will need to be made documenting the decision of the company to furlough its director(s), together with a letter to the director(s) as an employee.  Whilst on furlough, directors can perform their statutory duties as directors, but cannot carry out any other work for the company. 

Although HMRC hasn’t provided details of the nature of statutory duties, directors should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provide services to or on behalf of their company.

Whilst on Furlough

  • Employees will need to remain on furlough for a minimum of 3 consecutive weeks. There is no minimum furlough period from 1 July 2020 when flexible furloughing is introduced.  An employer can place an employee on furlough more than once, and one period can follow straight after an existing furlough period, while the scheme is open.

  • Once on furlough, an employee cannot work for an employer but can undertake training or volunteer subject to public health guidance, as long as the employee is not making money for their employer or providing services to their employer.

  • If workers are required to complete training courses whilst on furlough then they must be paid at least the National Living Wage or National Minimum Wage for the time spent training, even if this is more than the 80% of their wage that will be subsidised.

It is up to the employer to decide who is furloughed.  It could be because there is no work to do, but can also be as you have to be at home to look after your children or because you are self-isolating.

How are earnings calculated?

Full time and part time employees: The employee’s actual salary before tax, in their last pay period prior to 19 March 2020, should be used to calculate the 80% (see changes to the scheme from 1 July 2020 when flexible furloughing is introduced). 

If, based on previous guidance, you have calculated your claim based on the employee’s salary as at 28 February 2020 (and this differs from their salary in their last pay period prior to 19 March 2020), you can choose to still use this calculation for your first claim. 

Employees whose pay varies: If an individual has been employed for a full year prior to the claim, employers will claim for the higher of either:-

  • The amount that an employee earned in the same month last year, or

  • An average of an employee’s monthly earnings from the 2019-20 tax year

If an individual has been employed for less than a year, then an employer will claim for an average of an employee’s monthly earnings since starting work until the date that they are furloughed.  The same arrangements apply if your monthly pay varies such as if you are on a zero-hour contract.  If an employee has been employed for less than a month, then an employer should pro-rata the earnings from that month and claim 80%. 

Discretionary bonuses, commissions and fees are not included as part of monthly earnings.  However, if they form part of contractual pay, which you are obliged to pay employees, then they may form part of the calculation of earnings. 

What you will need to make a claim? 

  • your employer PAYE reference number 

  • the number of employees being furloughed 

  • National Insurance numbers for the furloughed employees 

  • Names of furloughed employees 

  • Payroll/employee number for the furloughed employees (optional) 

  • Your Self-assessment Unique Taxpayer Reference or Corporation Tax Unique Taxpayer Reference or Company Registration number 

  • The claim period (start and end date) 

  • Amount claimed (minimum length of furloughing is 3 consecutive weeks) 

  • Your bank account number and sort code 

  • Your contact name 

  • Your phone number 

If you have fewer than 100 furloughed staff you will be asked to enter details of each employee you are claiming for directly into the system. 

HMRC will reserve the right to investigate claims and cross-reference them to data on the Real Time Information (RTI) system. It is therefore essential to retain all records and calculations in support of your claim. 

More details can be found here.