Coronavirus Job Retention Scheme – (Updated 08/04/2020 @ 14.55pm)
HMRC will set up a new online portal so that ALL UK employers this month (proposed for launch on 20 April 2020) , regardless of size, will be eligible for assistance where an employee has been designated as a ‘furloughed worker.’ HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. The scheme does not allow for payments directly to employees, the responsibility for paying wages and salaries remains with the employer and must be recorded and reported in the normal way.
The current plan is that this will be in place for 3 months, starting from 1 March 2020, and it will be reviewed at the end of May 2020. Employers must set out which of their employees are ‘furloughed workers’ and inform particular employees.
The current guidance states ‘You will remain employed while furloughed. Your employer could choose to fund the differences between this payment and your salary, but does not have to’.
Changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.
Our HR support line can help (0844 892 2807).
When will it apply? – (Updated 08/04/2020 @ 14.55pm)
This will be backdated for wages from 1 March 2020 although it will be June 2020 before payments under this scheme are made to employers. Claims will cover the period from 1 March 2020 as the scheme has been backdated and for full and part-time employees the salary at 28 February 2020 will be referenced.
HMRC expect an online portal to be up and running by 20 April 2020.
Employers will need to provide the following information via an Online Portal.
- employer PAYE reference number;
- bank account and sort date; and
- contact name and sort code.
- the number of employees being furloughed;
- the claim period – start and end date;
- amount claimed (per the minimum length of furloughing of 3 weeks);
To reiterate, the Online portal is scheduled to be operational in the next two weeks.
When will it end? – (Updated 08/04/2020 @ 14.55pm)
The scheme is in place for 3 months at present and it will be reviewed as and when that becomes necessary.
How often can a claim be made? – (Updated 08/04/2020 @ 14.55pm)
1 claim can be made every 3 weeks. As such, the claim period is not linked to the employee’s pay period.
Who can make the claim? – (Updated 08/04/2020 @ 14.55pm)
File only agents such as a Payroll Bureau will not be able to make a claim due to data protection reasons.
Businesses and agents that are authorised to act on behalf of their client’s PAYE matters will be able to make a claim on behalf of their clients.
How will an employer apply for the reimbursement? – (Updated 08/04/2020 @ 14.55pm)
1 claim can be made every 3 weeks. As such, the claim period is not linked to the employee’s pay period.
Coronavirus Business Interruption Loan.
If your business needs short term cash flow support, you may be eligible for a Coronavirus Business Interruption Loan.
It is worth noting that employers may wish to consider this new loan facility which provides loans of up to £5m being accompanied with no interest charges for the first 12 months. Employers may consider the possibility of using this money to ease immediate cash-flow issues in order to furlough employees. The aim is to pay it back within 12 months when they are reimbursed under the Job Retention Scheme.
Does it apply to all employers?
It applies to all UK businesses, regardless of their size. This applies to charitable and not for profit businesses too. The scheme can also apply to any LLP member that is considered an employee by virtue of s836 ITOIA 2005. The reference salary for say, a Salaried Member of an LLP would be the LLP.
This is a grant which employers do not have to pay back. It will form part of their taxable income.
The scheme is open to all UK employers as long as they have a UK bank account.
What is a ‘furloughed’ employee?
The word furlough generally means a temporary leave of absence from work.
A furloughed employee is someone who rather than being dismissed for redundancy by their employer, is kept on the payroll during a period where the employer does not have any work for the employee.
There is an employment law aspect to this. Employers will need to consult and agree on which each employee that they are being furloughed.
How long can an employee be furloughed?
A minimum of 3 weeks.
It is possible to furlough an employee for 3 or more weeks and then ask them to work as normal. It is possible to furlough that same employee again.
Can an employee work for an employer whilst furloughed?
To qualify for the scheme, employees must not undertake work for the employer while furloughed. The employee can also undertake volunteer work, all of which is on the proviso that no services are provided to the employer in question and the volunteering does not make money for the employer.
Where training is undertaken at the request of the employer the employee will be entitled to be paid at least the NMW for this training. In most cases, the 80% furlough payment will ensure that the NMW has been observed and so an additional payment will not be required.
If the employee is on reduced hours or reduced pay then they would not be eligible for this scheme.
Gross or Net?
The Gross salary does not include Fees, bonuses and commission. The Gross salary at 28 February 2020 is the relevant figure to use (see below).
HMRC advise that the employee’s actual Gross salary should be used in order to arrive at the 80% figure in relation to full and part-time employees.
For full or part-time employees, HMRC says ‘Claim for the 80% of the employee’s salary, as of 28 February 2020, before tax.’
Are bonuses and commissions included in this Gross figure? – (Updated 08/04/2020 @ 14.55pm)
The Gross salary does not include Fees, bonuses and commission. However, it can include regular contractual and this can include past overtime and compulsory commission. There is no universally agreed definition of ‘compulsory commission’ however, our interpretation is that this relates to the commission that the employee is contractually entitled to receive as opposed to the less certain, discretionary commission that an employee has no right to expect.
The gross salary will not include non-monetary benefits provided to employees including taxable Benefits in Kind.
Benefits that are provided via a Salary Sacrifice scheme (including pension contributions) should not be included when determining the gross salary.
HMRC do, however, advise that ‘Where the employer provides benefits to furloughed employees, this should be in addition to the wages that must be paid under the terms of the Job Retention Scheme’
Employees whose pay varies
For those employers that have employees on varying wages, the eligibility criteria still refer to monthly earnings and the following would apply.
If you’ve been employed (or engaged by an employment business in the case of agency workers) for a full year, employers will claim for the higher of either:
- the amount you earned in the same month last year
- an average of your monthly earnings from the last year
If they have been employed for less than a year, employers will claim for an average of their monthly earnings since they started work on a rolling basis.
If the employment began in February 2020 then work out a pro-rata for their earnings so far and claim for 80%.
What if the employee is on SSP already?
HMRC state that employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this. Employees who are shielding in line with public health guidance can be placed on furlough.
National Minimum Wage
Individuals that are working are entitled to NMW for the hours that they are working or treated as working under minimum wage rules.
Furloughed workers are not working and therefore, it is possible that the 80% figure might result in a figure that is below NMW.
HMRC state ‘This means that furloughed workers who are not working can be paid the lower of 80% of their salary or £2,500 even if, based on their usual working hours, this would be below their appropriate minimum wage.’
Apprentices can be furloughed in the same way that any other employee can be furloughed, however, they are entitled to at least NMW for the time that they are training.
Does it apply to all employees?
The 80% wage guarantee will cover Zero-hour contracts or casual workers as long as they were on PAYE payroll on 28 February 2020.
This means that any employee that is hired after 28 February cannot be eligible for this scheme.
The scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer. However, those employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February 2020.
The self-employed are not covered by this scheme. Please refer to our Self-employment Income Support Scheme advice.
Does this apply to Personal Service Companies?
The guidance released on 4 April states that this applies to salaried individuals who are directors of their own Personal Service Company (PSC) including Off-Payroll workers supplying services via their PSC.
HMRC acknowledge that a director has duties which are set out in the Companies Act 2006 such as the obligation to file accounts and they accept that a director must meet those duties even when they are furloughed.
However, HMRC then go on to state that ‘they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.’
Presumably, work would include even the most basic employment duty such as checking post and replying to customer emails.
Will no employment duty be carried out at all during a time that a director of a personal service company has furloughed themselves in their employee capacity?
What will the Grant from HMRC cover?
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.
Must an employer supplement employees’ salaries over the 80%?
No. Employers can if they wish to or if there is an employment contract in place which requires this.
HMRC advise ‘If appropriate, worker’s wages should be reduced to 80% of their salary within your payroll before they are paid.’
Importantly they also add: ‘This adjustment will not be made by HMRC’ and ‘Claim for the 80% of the employee’s salary, as of 28 February 2020, before tax.’
This means that at a minimum, employers must pay their employee the lower of 80% of their regular gross wage or £2,500 per month to meet eligibility criteria and HMRC will then reimburse the employer for this same amount.
Employers can choose whether to:
Only make the salary payment (80%, capped at £2,500) which is to be reimbursed by the government. As mentioned, HMRC say that they will not make the adjustment to arrive at the 80% so the onus is on the employer.
Pay all of the difference between the grant and the employee’s normal salary.
Pay part of the difference between the grant and the employee’s normal salary.
Note the emphasis on ‘normal’ salary and ‘regular’ wage and the reference to the salary at 28 February 2020.
How does the grant impact on a business’s tax position?
The Grant will be treated as normal business income and taxable accordingly.
We will update this document as and when further governmental guidance is issued. To date, this has been on an almost daily basis.
If you have any further queries regarding the above or you wish to speak to one of our advisors regarding this please call the Croner Taxwise Tax, VAT and Payroll advice line fill out the form to request a callback.
FOR ANY CORONAVIRUS QUERIES, PLEASE CONTACT OUR HR, TAX OR PAYROLL TEAM HERE: http://bit.ly/TaxVATAdvice
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