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May 15, 2020

All about the Coronavirus Job Retention Scheme

HMRC have issued detailed guidance regarding how the coronavirus job retention scheme will work in practice.

How Much is the Grant?

Employers can claim:

  • the lower of; 80% of furloughed workers regular wage, or £2,500 per month
  • associated employer NICs on that subsidised wage, and
  • minimum automatic enrolment employer pension contributions on that subsidised wage

This gives a maximum grant per employee of £2,804 per month (£2,500 salary + £245 Employer NIC + £59 automatic enrolment pension contribution).

For salaried employees; the employee’s actual salary as at 19 March 2020 (excl. commission and bonuses) should be used to calculate the 80%.

However, originally the amount needed to be calculated using the employee's actual salary as at 28 February (as this was the original date an employee needed to be on the payroll). If there is a discrepancy between an employee's salary between 28 February and 19 March you can choose to still use the calculation for your first claim (i.e. 28 February).

For employees whose pay varies, the position will depend on the length of the employment:

  • For employees who were employed for 12 months prior to the claim, employers can claim the higher of the same month’s earnings for the prior year, or average monthly earnings for 2019/20.
  • For employees who were employed for less than a year, employers can claim the average monthly earnings since the employee started work
  • For employees that started in March 2020, employers should pro-rata their earnings to date.

The scheme was set to initially run for 3 months starting from 1 March 2020, however the scheme was extended until the end of June, and has now been been extended again until the end of October 2020.

Between 1 August and 31 October there will be several changes to the way the scheme operates. Currently employees using this scheme are not allowed to work for their employer, however from the 1 August employers will be able to bring furloughed individuals back to work on a part time basis. In return, the employer will be asked to share the cost of paying people's salaries with the Government.

Further details regarding these changes will be released by the end of May.

Guidance regarding various scenarios such as employees on sick leave, maternity leave, shared parental leave can be found on HMRC’s website.

The ICAEW have produced illustrative calculations of the amounts that may be claimed.

What are the Qualifying Conditions?

Any UK organisation with employees can qualify; this includes businesses, charities, recruitment agencies and public authorities.

The UK employer must have created and started a PAYE payroll scheme by 19 March 2020 and have a UK bank account.

Whilst on furlough, employees cannot undertake any work for or on behalf of the employer.  They can undertake voluntary work or training, provided this does not result in any services being provided or revenue generated for the organisation. As previously noted however, this condition will change from the 1 August.

The minimum furlough period is 3 weeks.

Who Can be Furloughed?

Furloughed employees must have been on the payroll on 19 March 2020.

It does not matter what type of contract they are employed on (i.e. part time, full time, agency contracts, flexible or zero hour contracts).

Workers on unpaid leave can only be furloughed if they were placed on unpaid leave after 19 March  2020.

Employees made redundant after 19 March 2020 can qualify if they are rehired by their employer.

How to Claim

Employers intending to furlough some/all of their staff should discuss this with their employees, and agree any changes to the employment contracts.  Employers should consider taking legal advice.

Employers will need to write to all affected employees, and should keep a record of this communication. The ACCA has released sample letters.

Employers will need to calculate the amount of the grant and submit the claim through a new online portal which is now available.

Claims can be submitted once every 3 weeks (as this is the minimum amount of time an employee can be furloughed).

The grants will be paid by BACS payment into a UK bank account.

The full amount received in respect of workers wages must be paid to the employee, no fees can be charged from the money granted.

Employers can choose to top up employees pay, but there is no requirement to do so.

What are the Tax Consequences?

Grants received by businesses will be included in taxable profits, however employment costs will be deducted as normal and will therefore offset the receipt.

Amounts paid to employees will be paid through payroll and subject to PAYE as normal.

Employer and employee automatic enrolment pension contributions will continue as normal unless the employee has opted out of the scheme.

Other Misc Points

The National Minimum Wage (NMW) and National Living Wage only apply whilst employees are working and will not generally apply to furloughed workers.

The only exception to this is where employees undertake training, in which case they must be paid at least the NMW/NLW for the time spent training (even if this is more than the amount subsidised).

Furloughed workers retain their usual rights in accordance with employment law.

HMRC will have the power to audit all aspects of the claims made.

The first payments under the scheme are not expected until April, in the meantime employers will need to look at ways to manage their cashflows such as the previously announced support measures.

Contact us today to discuss your tax requirements.
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