The aim of the Coronavirus Job Retention Scheme (CJRS) is to enable employers to retain employees who will be needed when the business begins to rebuild in the future (when the pandemic has eased), rather than having to make them redundant. It does so by creating a new category of employment, known as a ‘furloughed employee’.
The CJRS is available for any employee, including domestic staff, who was on the payroll by 19 March 2020 and was reported to HMRC as an employee by that date. Any UK employer, whether small or large, charitable or non-profit, can utilise the scheme.
It will provide a grant (not a loan) to the employer to cover, for each employee:
Furloughed members of staff must not work for the employer during the period of furlough. However, furloughed workers can undertake training while they are on furlough.
The furlough can begin from 1 March 2020 (i.e. be backdated) and will be available for at least 4 months as HMRC have now extended the scheme until 30 June. An employer will only be eligible to claim the CJRS grant after they have agreed the furlough with their staff and those staff have stopped working for the employer.
The employee remains subject to employment law in the normal way, so will retain normal employment rights (e.g. right to paid holiday). The employer needs to communicate to each furloughed employee in writing that they are furloughed, and obtain their agreement to any reduction in their contractual wages. A copy of this communication should be kept by the employer for 5 years.
An employee does not have to accept furlough if offered, but the employer could make the employee redundant instead, as long as the appropriate employment law procedures are followed.
While employees are on furlough, they are not working and the National Living Wage (NLW) does not apply during that period, so if their pay is reduced to what would be below the NLW or (where appropriate) National Minimum Wage rate while on furlough that it is not an issue. However, time spent training is treated as working time for the purposes of the minimum wage calculations and must be paid at the appropriate minimum wage rate.
The scheme is being designed to allow for flexibility, meaning that furloughed staff can be brought back to work, for example to replace those still working who later become sick. However, once furloughed, an employee must remain on furlough for a minimum period of three weeks.
The intention of the scheme is to allow employers to pay staff who are without work and would otherwise be made redundant. It is currently unclear how HMRC will police this, however it may be a line of enquiry in future HMRC PAYE investigations.
Eligible employees are those on furlough who were on the payroll and reported on an RTI submission to HMRC by 19 March 2020. This includes all of the following:
Those made redundant after 28 February 2020 but who have been re-employed by the same employer, even if after 19 March 2020, can also be furloughed.
Employees with more than one employment can be furloughed by one employer and continue to work for and get paid by their second employer.
In addition, the following employees may be brought on to furlough and be eligible for the grant:
Note that employees who are receiving statutory sick pay (SSP) cannot be included in the grant application. The grant does not cover SSP. However furloughed employees can be moved on to SSP.
Administration of the scheme
HMRC will launch a new online portal specifically to deal with grant applications and this is due to go live on 20 April. The funds should start flowing to employers from 30 April. The delay between application and payment is to allow HMRC to undertake checks to prevent fraud.
Businesses with cash flow problems may need to access the Coronavirus Business Interruption Loan Scheme to support cash flow in the meantime.
To access the grant the employer will need to have a PAYE online account, but we will be able to submit a grant application on your behalf, as your tax agent, if you have authorised us to act for you for PAYE matters.
It will be possible to submit claims up to 14 days prior to the payroll date and once a claim has been made HMRC intend to issue payments within 4 to 6 days of receipt of the claim. In theory, once the relevant security checks are undertaken, employers should therefore be able to claim in advance of a payroll run and be in receipt of funds prior to paying their furloughed staff.
To submit the grant application the employer (or tax agent) will need the following information:
Relevant employees must be designated as ‘furloughed employees’, whom the employer will then pay through the payroll, reporting payments to HMRC in the normal way under Real-Time Information (RTI).
HMRC expects the employer to make the claim either shortly before or during the process of running the payroll, and the claim should use the amounts of salaries reported in the payroll.
Maximum grant claimable
The maximum grant will be calculated per employee and is the lower of:
This gives a maximum grant per employee per month of (using 2019/20 rates) £2,500 +£246 (employers’ NIC) + £59 (pension contribution) = £2,805. For 2020/21, this figure will become £2,803.
Claims should be made from the date the employee finishes work and starts furlough, not when the decision is made.
Any employers’ NIC covered by the Employment Allowance should not be included in the claim for the CJRS grant.
The apprenticeship levy is not covered by the CJRS grant.
Student loan repayments must still be deducted from the employee’s wages and paid over.
Only pension contributions actually paid by the employer to the level of the auto enrolment employer contribution can be claimed. If the employee has opted out of the pension scheme there are no contributions to claim for. If the employer pays contributions greater than the minimum percentage, only the minimum amount can be claimed.
The salaries paid remain deductible for tax purposes by the employer and the grant will be taxable income of the employer. Where the employer is an individual and not a business, such as an individual employing domestic staff, the CJRS grant will not be treated as taxable income.
Employee’s “regular wage”
For full-time and part-time employees, the base for the 80% calculation is the employee’s actual salary as of 28 February 2020.
For employees whose pay varies, HMRC guidance advises the following:
Note that, under the furloughing scheme, there is no requirement for the employer to ‘top up’ the remaining 20% of salary. However, it is likely that a contract of employment will require the full salary to be paid, unless employees and employers agree to a different arrangement during the furlough.
Many director/shareholders pay themselves small salaries and the balance of their income as dividends from their companies. The CJRS does not cover the payment of dividends; only the salary paid under PAYE is eligible for the grant available under the scheme.
HMRC has confirmed that office holders, such as directors of their own company who do not have a contract of employment, can be furloughed. However, those directors must not provide any services to or on behalf of the company, or generate any income for the company while they are furloughed.
Directors can undertake statutory duties while furloughed that would reasonably be judged as necessary, such as submitting statutory returns and supplying information to HMRC.
Directors of their own companies are not eligible for help under the Covid-19 Self-employment Income Support Scheme (SEISS).
The impact on job sharing employees will be a matter both for negotiation with staff and employment law.
Where a salary sacrifice scheme is in place, employees cannot normally move freely in and out of that scheme, as a change in contract terms is required first. However, HMRC has agreed that the coronavirus is a “life event” which allows the employee to move out of the salary sacrifice scheme. This is particularly important for schemes involving pension contributions.
How we can help
HMRC’s new portal is due to launch on Monday 20 April and we are currently reviewing each client’s payroll data to identify any further information that may be required to allow us to submit a claim on your behalf. In most cases, if you have furloughed one or more employees/directors, the key information that we will require you to confirm will be:
If you have not yet confirmed this information to us please do so as soon as possible.
Using the payroll data that we hold we will calculate the claim available and upload this to the HMRC portal on your behalf as soon as we can. It has been confirmed that employee data will have to be manually keyed into HMRC’s website which will be very time consuming and labour intensive so we will proceed with claim submissions with the aim of having all claims submitted as soon as possible over the course of next week. We would ask that all clients bear with us through this process. Given the number of furloughed workers across the country the demands placed on the claim system are likely to be very high and we do not yet know how well the system will cope given the short time scale in which it has been designed and implemented.
Given that it appears a claim can only be submitted once every three weeks, there are some clients with payrolls to run within the next week or so and it may make sense for us to delay submission of those claims until the next payroll run has been finalised to ensure that the cash flow benefit of the CJRS is maximised.
We do expect there to be some delays in the first claim as HMRC go through their security checks but we will keep you advised as best we can. It would be appreciated if you could confirm receipt of funds from HMRC under the CJRS Scheme as we won’t necessarily receive direct confirmation from HMRC.
If you have any queries regarding the CJRS we would ask that you email your usual contact in the first instance and we will endeavour to respond just as soon as we can.
Payroll specific queries: Payroll@johnmtaylor.co.uk
General CJRS queries: firstname.lastname@example.org