Coronavirus Job Retention Scheme
Last updated 6 April 2020
On 26 March 2020, HMRC issued updated guidance on the Coronavirus Job Retention Scheme first announced by the Chancellor, Rishi Sunak, on 20 March 2020.
The original announcement signposted support available to all employers as part of the Government’s measures to help businesses during the COVID-19 pandemic.
The scheme initially applies to the period 1 March 2020 to 31 May 2020, during which time HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month.
Below we have summarised the guidance to answer the key questions that surrounded the original announcement.
1. Can furloughed members of staff work for their employer during the period of furlough?
No, furloughed members of staff must not work for the employer during the period of furlough.
If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and their employer will have to continue paying the employee through the payroll and pay their salary.
2. Can employers backdate a claim for support to 1 March 2020?
Yes, but only if staff have been furloughed from that date. The scheme covers employees who were made redundant since 28 February 2020, provided they are rehired by their employer. An employer will only be eligible to claim the grant once they have agreed the furlough with their staff and staff have stopped working for the employer.
Employees hired after 28 February 2020 cannot be furloughed or claimed for under this scheme.
3. Are there any restrictions on which employees the scheme is available for?
Yes, the scheme is only available for employees on the payroll at 28 February 2020 but can be on any type of contract including:
- Full time employees
- Part time employees
- Employee on agency contracts
- Employees on flexible or zero-hour contracts
4. Does an employer have to top up an employee’s salary?
No, at a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 gross per month. An employer can also choose to top up an employee’s salary beyond this but is not obliged to under this scheme.
5. How is the amount calculated for employees whose pay varies?
If the employee has been employed for a full twelve months prior to the claim, the employer can claim for the higher of either:
- The same month’s earning from the previous year
- Average monthly earnings from the 2019-20 tax year
If the employee has been employed for less than a year, the employer can claim for an average of their monthly earnings since they started work.
Fees, commission and bonuses should not be included.
6. Does the cap of £2,500 apply pro rata to part time employees?
No, the employee’s actual wage is what is important here and their salary before tax, as of 28 February 2020 should be used to calculate the 80%.
7. What if an employee has more than one job?
If an employee has more than one employer they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.
8. Does the employer continue to be liable for Employer National Insurance and pension contributions?
Whilst all employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees, they can claim a grant from HMRC to cover the Employer National Insurance contributions and minimum automatic enrolment employer pension contributions associated with the grant amount.
If an employer chooses to top-up their employees’ salary in addition to the grant, employers National Insurance Contributions and automatic enrolment contribution on any additional top-up salary will not be funded through this scheme. Nor will any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income above the lower limit of qualifying earnings.
There are some useful examples of the costs to employers on the ICAEW website.
9. What about PAYE and Employee National Insurance?
Wages of furloughed employees will be subject to Income Tax and National Insurance as usual. Employees will also pay automatic enrolment contributions on qualifying earnings, unless they have chosen to opt-out or to cease saving into a workplace pension scheme.
10. Do employment benefits continue during the period of furlough?
Yes, the rules for the grant will not displace the existing employment contract so we would expect the entitlement to holiday and sick pay to continue in line with employees’ contracts.
11. How will the payment from the scheme be treated in the hands of the employer?
The scheme pays a grant (not a loan) to the employer. Payments received by a business under the scheme must be included as income in the business’ calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles.
Businesses can then deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.
12. How do I make a claim for a grant through the scheme?
The grant will be paid to the employer through a new online system which is being built for this purpose. There is no detail about the application process at the moment.
The employer will pay the employee through payroll, and report payments to HMRC using the Real Time Information (RTI) system as usual.
Once HMRC have received your claim and you are eligible for the grant, they will pay it via BACS payment to a UK bank account.
13. What about self-employed people, shareholder directors or salaried LLP members?
The scheme does not apply to self-employed people, separate measures were announced to support this group of people, please see our article here for more guidance.
HMRC have subsequently issued further guidance about the eligibility of this scheme to office holders (including company directors) and salaried members of LLPs.
Provided they are paid via PAYE, the grant can be claimed for these individuals. Please see our article here for more guidance.
There are some useful worked examples at the ICAEW website.
Furloughing is a new legal concept for English law, so Directors and Managers should take care to use letters and supporting documents written and provided by employment lawyers. If you should need an introduction to suitable lawyers then please speak with your normal Kreston Reeves contact.
For further information, please speak with your usual Kreston Reeves contact or contact me here.
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