• At a glance - Coronavirus Job Retention Scheme: a cash grant that is designed to allow employers to retain staff who would otherwise be laid off.

    • Employers may claim a grant of up to 80% of the salaries of employees plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage, provided they keep the worker employed who have been laid off during this crisis.
    • This is subject to a cap of £2,500 per month.
    • Only employees on the PAYE payroll as at 28 February 2020 can be furloughed.
    • Employers must designate affected employees as ‘furloughed workers' and notify the employees of this change.
    • To qualify for this scheme: workers should not undertake work while furloughed.
    • Employers submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal.  Claims can be made every three weeks.
    • HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.

     

    What does the government mean by furloughing?

     

    • 'Furloughing' is an alternative to laying people off.
    • Employees are kept on the payroll instead of dismissing them as redundant or laying them off without pay.
    • It is relevant for employees who are not off sick or claiming other statutory employment benefits. Sick workers are instead eligible for government support under the Statutory Sick Pay (SSP) rules.

     

    Who can be furloughed?

     

    • Any employee, apprentice or director.
    • Full time, part time or casual or zero hours workers.
    • Provided that they were engaged under an existing employment contract on 28 February 2020.

     

    How does it work and how much can be claimed?

     

    HMRC will reimburse:

     

    • Up to 80% of the wage costs of furloughed employees, subject to a cap of £2,500 per month per employee.
    • Plus Employer National Insurance contributions and minimum automatic enrolment employer pension contributions.

    What are wages?

     

    Wages are your monthly earnings:

     

    If wages are of a fixed annual amount this is the amount paid in the month to 29 February.

     

    If the your employee's salary varies:

     

    • If they have been employed for a full year or more prior to the claim, you can claim the higher of:
      • their earnings for the same month in the previous year and
      • their average monthly earnings for 2019/20 tax year.
    • If they have been employed by you for less than a year, take their average monthly earnings since they started working for you.

    Update: 4/4/202

     

    The grant paid to your employer will be calculated based on your regular, contractual pay, such as wages, compulsory commission and past overtime.

     

    The calculation will not include discretionary commission (including tips) payments or bonuses, non-cash payments or benefits in kind.

     

    What about overtime?

     

    It is paid. We queried this on 3 March 2020 and HMRC have been quick to update their guidance.

     

    • The grant paid by your employer is based on regular contractural pay including past overtime.

    Practically speaking, this means that the amount paid is based on your contractural earnings as paid in February 2020, or if the calculation is based on variable pay, the mechanism will be the average of contractual earnings for 2019/20 paid up to 28 February 2020. It will not include discretionary amounts paid.

     

    How to make a claim from HMRC

     

    • Payment is by a grant provided by HMRC to be paid by BACS directly into a UK bank account.
    • Claims should be made in accordance with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll. You should pay your furloughed employees through the payroll under RTI as normal but at the 80% adjusted amount unless you have agreed to top up their pay (see below).
    • This measure applies for three months from 1 March 2020 but may be extended. There is a minimum furlough period of 3 weeks.

    What to pay?

     

    As an employer you may need to renegotiate the employee's contract: the need to do this may well reflect your financial circumstances.

     

    • It is up to you whether you pay the 20% difference so that your employees receive their full pay.
    • Higher earners may be adversely affected.
    • The amount paid to a worker when furloughed is a decision for you as an employer and may be a matter of negotiation with your employees.

     

    You must pay the employee all the grant received for their gross pay, no fees can be deducted from the grant money.

     

    The employees you furlough must not work for you during the furlough period.

     

    • They remain your employees.
    • They may undertake training during the their furlough period.
    • It is not clear whether they are allowed to take temporary work elsewhere during the furlough period, but it may be that their employment contract currently forbids it. See below for how you might wish to deal with this.

    Do not forget about employment law. This is for your protection as an employer (against claims by employees once this is all over) as well as the protection of your employees.

     

    *We are unable to give employment law advice but have included some suggestions below which should help manage your risk here. If in doubt you must seek independent legal advice.

     

    How to make a claim

     

    The online portal for making claims is expected to be available by the end of April. Claims can only be made every 3 weeks but can be backdated to 1 March 2020.

     

    To make a claim you will need the following information:

     

    • ePAYE reference number
    • The number of employees being furloughed
    • The claim period (start and end date, the start date cannot be before 1 March 2020)
    • Amount claimed the minimum length of furloughing is 3 weeks)
    • Your bank account number and sort code
    • Your contact details

     

    You must calculate the amount to claim, HMRC will not do it for you. HMRC have said that they will retain the right to retrospectively audit all aspects of your claims.

     

    Tax Treatment of the Job Retention Grant

     

    • Payments received under the scheme must be included as income in the business’s calculation of its taxable profits for income tax and corporation tax purposes, in accordance with normal principles.
    • Employment costs may be deducted as normal when calculating taxable profits.

     

    Steps to take when furloughing workers

     

    • Decide which employees are to be furloughed and designate them as such. If this is not all your employees, you should ensure you use a fair selection process*:
      • You could start with any employees who cannot work from home, if this is appropriate, or those who need to stay home to look after children.
      • Ask for volunteers.
      • You could adopt the same sort of process you would if making people redundant, using pooling and selection criteria.
    • Decide whether you will top up the amount being reimbursed by HMRC and if so by how much.
    • Decide whether you are furloughing employees for a fixed period e.g. the full three months or whether you need to keep it flexible. This means less certainty for everyone but allows you to call employees back if the situation changes and restrictions on working are lifted.
    • Decide whether you would agree to employees taking temporary work elsewhere during the furlough period. You may wish to only address this if asked by your employees.*
      • If their contract currently forbids this, you should advise them of your decision in writing.
      • If the contract does not forbid this it would seem, unless the government advises otherwise, that employees are free to do this.
    • Monitor your cashflow position to see if you have sufficient funds to pay your employees until the HMRC grant comes in, likely to be sometime before the end of April. If you do not, you may wish to consider a business interruption loan or deferring your VAT payment.
    • Check the employment contract for each employee you intend to furlough.
      • If you intend to top up their payments to maintain their normal pay you should not need the employees’ consent as you are not deviating from their contractual terms.
      • If you do not intend to top up their payments then you will need the employees’ consent unless their contract allows for you to reduce or stop their pay when there is no work for them to do. If in doubt you may wish to take legal advice.
    • Notify the designated employees that they are furloughed. Tell them whether you are topping up their wages or whether they will just get the 80% amount reimbursed by HMRC/£2,500 per month, whichever applies. It is advisable to do this in writing.
    • If required (see above) obtain consent from the employees, in writing, to be furloughed.
    • If you do have sufficient funds, make payments to your furloughed workers accordingly.
      • This should go through the payroll as normal with tax. Employee NICs should be deducted as normal. HMRC confirmed this on Twitter on 25 March 2020 and again in their guidance of 26 March 2020.
    • It is not yet clear how the grant will work for employers who are unable to pay their furloughed workers until the grant comes in and whether they can delay wages payments until HMRC pay them.
    • Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. This is not yet available and we do not have details of what information will be required.
    • We assume that once information has been submitted you will receive your grant from HMRC.

     

Coronavirus Job Retention Scheme - update 4 April 2020

  • At a glance
  • Furlough vs. Redundancy
  • Letter to employee
  • Employee response form
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