Overnight HMRC have published their detailed guidance on the eligibility and process for making a claim through the Coronavirus Job Retention Scheme which we have summarised below.
Unexpectedly, rather than the employer providing information to HMRC for them to calculate the grant entitlement, the onus is on the employer to make that calculation and submit the claim accordingly.
In addition, several questions that we have been repeatedly asked over the last few days have been definitively answered:
- A furloughed worker is defined as being on a leave of absence. The employee cannot undertake any work for or on behalf of the company whilst on furlough.
- Employees on reduced hours and/or pay are not eligible for the scheme.
- A business owner on a salary and dividends remuneration is eligible to be a furloughed worker on the salary element only and if that salary is paid through a PAYE payroll.
- For employees on variable pay, the claim amount can be based on their average monthly earnings for the 2019-20 tax year.
- Fees, commission and bonuses are not included in calculating the wage costs.
- For a furloughed worker, the employer can claim 80% usual monthly wage costs, up to £2,500 a month, plus the associated Employers National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.
- Whilst on furlough, the employee’s wage will be subject to usual Income Tax, National Insurance and other deductions.
- The minimum furlough period is three weeks.
Employees That Are Eligible For The Scheme
The scheme is open to all UK employers that had created and started a PAYE payroll scheme by 28th February 2020 and the scheme starts from 1st March 2020. This includes recruitment agencies where agency workers are paid through PAYE.
The scheme is initially set to run for three months and an employer can use the scheme at any time during this period.
The only qualification for a furloughed worker is that they must have been on your PAYE payroll on 28th February 2020 irrespective of their type of contract.
As a result, the scheme is open to full-time employees, part-time employees, employees on agency contracts and employees on flexible or zero-hour contracts.
The scheme also covers employees have been made redundant since 28th February 2020 so long as they are rehired by their employer.
If an employee is working but on reduced hours or for reduced pay, they will not be eligible for this scheme. You will need to continue to the employee through your payroll and pay their salary subject to the terms of the employment contract you agreed.
As the employer, you need to discuss the situation with your staff and make any changes to the employment contract by agreement. Bear in mind in making decisions that equality and discrimination laws will apply in the usual manner.
To be eligible to claim the grant, employers need to write to their employee confirming that they have been furloughed and keep a record of this communication.
Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28th February.
Employees on sick leave or self-isolating should receive Statutory Sick Pay but can be furloughed after this period ends. However, employees who are shielding in line with public health guidance can be placed on furlough.
For an employee who has more than one employment, they can be furloughed for each job and, as each job is seen as separate, the furlough cap applies to each employer individually.
A furloughed worker can undertake volunteer work or training, as long as it does not directly provide services to or generate revenue for the business.
If you decide to require a furloughed worker to complete, say, an online training course, bear in mind that they must be paid at least the National Living Wage or National Minimum Wage level for the time spent training even if this is more than the 80% of their wage that will be subsidised.
For an employee on Maternity Leave, the normal Statutory Maternity Pay rules will apply. However, if you offer enhanced contractual pay above the Statutory Maternity Pay level, this is included as a wage cost that you can claim through the scheme.
The same principles apply where your employee qualifies for contractual adoption, paternity or shared parental pay.
Calculating What You Can Claim
For eligible furloughed workers, you will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage.
Fees, commission and bonuses are not included.
At a minimum, employers must pay the employee the lower of 80% of their regular wage or £2,500 per month. An employer can also choose to top up an employee’s salary beyond this but is not obliged to under this scheme.
There will be more guidance from HMRC on how to calculate the claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions before the scheme becomes live.
For full-time and part-time salaried employees, the employee’s actual salary before tax as at 28 February should be used to calculate the 80%.
For employees whose pay varies and has been employed for a full twelve months prior to the claim, you can claim for the higher of either:
- the same month’s earnings from the previous year; or
- average monthly earnings for the 2019-20 tax year.
If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
Once the amount of an employee’s pay to be claimed has been calculated, you need to then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.
If you decide to top-up the pay to furloughed worker, the resulting additional Employer National Insurance Contributions and automatic enrolment contribution will not be funded through this scheme.
Likewise, any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income will not be funded through this scheme.
What You Need To Have In Place To Make A Claim
You need to discuss the with your staff and make any changes to their employment contract by agreement. If you are unsure on this, it would be advisable to legal advice on the process.
If a large number of staff are involved, it may be necessary to engage a collective consultation processes to secure agreement to changes to terms of employment.
To claim, you will need:
- your ePAYE reference number;
- the number of employees being furloughed;
- the claim period start and end date;
- amount claimed for at least the the minimum length of furloughing of three weeks;
- your bank account number and sort code;
- your contact name;
- your phone number.
The employer is responsible for calculating the amount that is being claimed and HMRC has the right to retrospectively audit all aspects of your claim.
You can only submit one claim at least every three weeks which is the minimum length an employee can be furloughed for and the claims can be backdated to the 1st March, if applicable.
Once HMRC has received your claim and you are eligible for the grant, they will pay it via a BACS payment to a UK bank account.
The claim should be made in line with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll.
You must pay the employee all the grant you receive for their gross pay and no fees can be deducted from the money that is granted. You can choose to top up the employee’s salary, but you do not have to.
What Happens When The Coronavirus Job Retention Scheme Ends?
When the government ends the scheme, you must decide based on your circumstances at that point, as to whether employees can return to their duties.
If not, it may be necessary to consider termination of employment through a redundancy process.
Employees that have been furloughed have the same rights as they did previously which includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.
Once the scheme has been closed by the government, HMRC will continue to process remaining claims before terminating the scheme.
Tax Treatment of the Coronavirus Job Retention Grant
Payments received by a business under the scheme are made to offset payroll costs that are a deductible business expense. As a result, the grant must be included as income in the calculation of the taxable profits of a business for Income Tax and Corporation Tax purposes.
The employment costs will be deducted as normal when calculating taxable profits.
We expect the HMRC portal to process the Coronavirus Job Retention Scheme claims to go live in around three weeks and the first grant payments to be made by the end of April.
In the meantime, if you have any questions or would like any further information, please either email firstname.lastname@example.org or book an appointment at https://calendly.com/jonathan-cooper/covid-19-support