Coronavirus Job Retention Scheme
Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis.
Qualifications and how to calculate the grant
To qualify for the furlough grant employees must have been on your payroll as at 19 March 2020. Employees that are full time, part time, and on flexible/zero hours contracts qualify.
You do not have to place all your employees on furlough. The minimum length of time an employee can be furloughed for and qualify for the support is 3 weeks.
The Government will fund 80% of furloughed workers wage costs (capped at £2,500 per month per employee). In addition they will fund the associated Employer National Insurance and minimum Employer Auto-Enrolment Pension Contributions. For full time and part time employees, the actual salary as at 28 February 2020 (or a later pay period prior to 19 March 2020 if applicable) should be used to calculate the 80%. Fees, commission and bonuses should not be included in the calculation.
It is at the employer’s discretion whether to top-up employees salary to 100% but, irrespective of this, the Government will only fund 80% of the employment costs. Any Employer’s National Insurance and/or Pension Contributions arising on these top-up amounts will not be funded through this scheme. The same is also true for any voluntary Automatic Enrolment Contributions above the minimum compulsory Employer Contributions of 3% of income above the lower limit of qualifying earnings (which is £512 per month until 5th April and will be £520 per month from 6th April 2020 onwards).
For employees on a variable or zero hours contract, if the employee has been employed for a period of at least 12 months prior to a claim you calculate their pay as the higher of either:
- The same month’s earnings from the previous year, or
- The average earnings from the 2019/2020 tax year.
If the employee has been employed for less than a 12 months, you can claim for an average of their monthly earnings since they started work. Once you have worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance and minimum Employer Pension Contributions you are entitled to claim.
The amount paid to furloughed employees continues to be subject to PAYE and Employees National Insurance and Pension Contributions as normal.
Employees only qualify for the support if they are put on leave after 28 February 2020 as a result of Coronavirus. Any employees who continue to work for the employer (whether on reduced hours or not) are not eligible for the support.
If an employer has made an employee redundant as a result of Coronavirus since 1 March 2020 February, it is possible to bring them back onto the payroll as a furloughed employee and claim support for them.
Employees currently on sick leave or those that have been instructed to self isolate by NHS 111 or a doctor should be paid Statutory Sick Pay. Once the employee is able to return to work they can be furloughed. Employees who are isolating in line with public health guidance can be placed on furlough.
If your 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
The affected workers will need to be designated as ‘furloughed workers’, and will need to be notified in writing of this change to their employment status, in accordance with existing employment law. It is likely that most employees will agree to the terms. For those workers who do not agree, they will either have to take unpaid leave for an indeterminate period or employers are likely to have to go down the redundancy route. The employment status for furloughed employees will change, but their employment record remains continuous. The employer must decide whether to furlough employees, it is not an employee decision, although the employee needs to agree to it. When employers are making decisions who to place on furlough, equality and discrimination laws will apply in the usual way.
Being on furlough is a mandatory suspension from work, and furloughed employees are banned from doing any work on behalf of their employer. Also, they cannot accept or be paid for any work from another business, it is effectively like being on gardening leave. They can undertake voluntary work, for example for the NHS and other organisations supporting communities during this period. Employees can undertake training whilst on furlough as long as it does not provide services to or generate revenue for or on behalf of the employer. If workers are required to complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent on the required on-line training, even if this is more than the 80% of their wage being received on furlough under the grant scheme.
National Living Wage/National Minimum Wage
Individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW) for the hours they are working.
Therefore, furloughed workers, who are not working, must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.
However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
What you’ll need to make a claim
The HMRC portal for making claims is expected by the end of April 2020.
To claim, you will need:
- your PAYE reference number
- your Self Assessment UTR, Corporation Tax UTR or Company Registration Number
- the number of employees being furloughed
- names and Natipnal Insurance numbers for furloughed employees
- the claim period (start and end date)
- amount claimed (per the minimum length of furloughing of 3 weeks)
- your bank account number and sort code
- your contact name
- your phone number
You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.
You can only submit one claim at least every 3 weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until the 1 March if applicable.
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.
You should make your claim in accordance 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, no fees can be charged from the money that is granted.
When the government ends the scheme
When the government ends the scheme, you must make a decision, depending on your circumstances, as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy).
Employees that have been furloughed have the same rights as they did previously. That 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 these deductible revenue costs. They must therefore 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.
Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.
The Government guidance can be found here