Since the Coronavirus Job Retention Scheme (CJRS) was announced, we’ve received a number of enquiries from clients with questions about the mechanism and process involved. HMRC updated its guidance on the scheme on 17 April 2020 and on May 29 extended the scheme until 31 October 2020. Our summary below reflects the most common questions and responses based on information which is currently available.
Which employers are eligible?
All UK businesses can claim under the scheme if they:
- Created and registered a PAYE payroll scheme on or before 19 March 2020
- Have enrolled for PAYE online
- Have a UK bank account, and
- Have furloughed employees who were already employed and had been paid via RTI on or before 19 March 2020.
Eligible entities include businesses, charities, not-for-profit organisations, recruitment agencies, single director companies and public authorities. Administrators may also apply but only if there is a reasonable expectation that individuals will ultimately be rehired. It is not expected that many public sector organisations will furlough employees. Individuals who employ domestic workers (eg a nanny) can apply where the worker is formally furloughed.
If a business has taken on employees of a previous business transferred after 19 March 2020 they are eligible if either the TUPE or PAYE business succession rules apply to the change in ownership, regarding the employees concerned.
Finally, if a group of companies with multiple PAYE schemes transfer of all employees into a new consolidated PAYE scheme after 19 March 2020, the new scheme will be eligible to furlough those employees and claim the grants available under the CJRS.
Are Expats eligible for the Coronavirus Job Retention Scheme? And does the employee have to be physically paid by the UK employer?
Inbound expats will qualify for CJRS if the conditions of the scheme are met. The individual must be on the UK payroll, must have received a payment of earnings included on an RTI submission before 19 March, and must be an employee of the UK business submitting a claim under the scheme.
Whether the individual is an employee of the UK entity is a question of fact. HMRC will accept that assigned or seconded employees who are included by an employer within a normal, Appendix 6, or dedicated expatriate PAYE scheme, constitute employees of the UK entity for the purposes of the Coronavirus Job Retention Scheme.
So long as the UK entity is the employer it doesn’t matter who physically pays the employee. We would note, though, that businesses should only access the scheme if they could not maintain their current workforce without doing so. If the UK employer can continue to successfully recharge costs to an overseas entity, then it does not need to access the Coronavirus Job Retention Scheme and is, therefore, ineligible for it.
What is a furloughed employee?
The concept of an employee furlough is new to the UK but in general terms it refers to when employers require their staff to take unpaid leave of absence. To be eligible for the subsidy, when on furlough, an employee cannot undertake work for or on behalf of the organisation (eg providing services or generating revenue) until 1 August when a part time working arrangement will be possible. Full details of the new rules from 1 August have not yet been released. While on furlough, the employee’s wage will be subject to usual income tax and other deductions.
The scheme also covers employees on agency contracts but only those who are not working.
If an employee is currently working, but on reduced hours, or for reduced pay, they are not ‘furloughed’ and will not be eligible: this is due to change from August. If an employee chooses to volunteer, for example to assist the NHS, this will not impact their status as a furloughed employee.
Employees that have been furloughed have the same rights as they did previously. That includes Statutory Sick Pay entitlement, maternity rights, other parental rights, and rights against unfair dismissal and to redundancy payments.
Each employee must be notified in writing that they are being furloughed, however, HMRC’s guidance states that “Collective agreement [for furlough] reached between an employer and a trade union is also acceptable for the purpose of such a claim.” We would recommend that employment law advice is sought before issuing the relevant written communications/notifications to selected employees. Note that a record of this written communication must be retained for six years.
Which employees can be furloughed?
The scheme covers, full-time and part-time employees (including foreign nationals), apprentices and those on agency contracts (including umbrella companies) or on flexible, fixed term or zero-hour contracts, including Limb (b) workers paid through PAYE. Office holders (including company directors) and salaried members of Limited Liability Partnerships (LLPs) can also be furloughed.
The HMRC guidance states that in the case of agency workers (including umbrella companies), furlough should be agreed between the agency or umbrella company and the worker, not the end user business.
If the individual was on a fixed term contract the key criteria is whether or not the employer included them in an RTI submission to HMRC before 28 February or 19 March. Where such an RTI return was made, the individual can have their fixed term contract renewed and then be furloughed to participate in CJRS.
Employees that were on payroll as of 28 February 2020 and were made redundant or stopped working for the employer after that and prior to 19 March 2020 can also qualify for the scheme if the employer re-employs them and puts them on furlough. An employee who started unpaid leave after 28 February 2020 can be put on furlough instead, but an employee who went on unpaid leave on or before 28 February 2020 cannot be put on furlough until the date on which it was agreed they would return from unpaid leave. No employees can be furloughed after 10 June 2020.
Note that if an employee had multiple employers over the past year but only worked for one of them at any time and is being furloughed by their current employer, no former employer(s) should also re-employ, furlough them and make a CJRS claim in respect of them.
There are special rules for those on sick pay, maternity/paternity/shared parental leave, and those who are volunteers or who undertake online training. Where employees are carers or need to look after children or are ‘shielding’ under government advice as a result of the COVID-19 crisis they can be furloughed.
Note that apprentices can be furloughed and continue to train during this time but employers must pay at least the appropriate minimum wage for the time they spend training.
I operate through my own personal service company but my work has dried up, can I furlough myself?
Yes, as a company director you can qualify as a furloughed employee. As with other employees you must not carry out any profit generating work for the company while on furlough but can undertake company administrative tasks (such as filing tax returns and company accounts) as needed.
How much is covered?
Until 31 July 2020, HMRC will pay a grant to cover the lower of 80% of an employee’s regular wage as in their last pay period prior to 19 March 2020 or £2,500 per month, plus the associated employer NIC and a minimum 3% automatic enrolment employer pension contribution on that subsidised wage. Fees, tips, bonuses and discretionary commissions will not be included. However, for employees entitled to regular ‘compulsory’ commission payments, employers must include such payments in the basic wage calculation for the furlough claim. Employer Apprenticeship Levy payments and the costs of any benefits in kind are not covered.
If, based on previous HMRC guidance, an employer calculated a claim based on the employee’s salary as at 28 February 2020 (and this differs from their salary in their last pay period prior to 19 March 2020) they can choose to still use this calculation for their first claim.
From 1 July 2020, a new version of the scheme opens and if an employee returns to part time working, the employer must pay the individual for those hours and this payment will reduce the amount the employer can claim for that employee under the scheme. The calculation will be based on days/hours worked as proportion of normal working hours – time not worked in the week will qualify for the furlough payment. Claims under the scheme from 1 July 2020 will be restricted to cover only those employees furloughed on or before 10 June 2020.
From 1 August, support under the new scheme is reduced. During August, employers must pay the employer’s NIC and pension contributions on the 80% furlough wage payment. During September, employers must pay the NIC and pension contributions plus 10% of the employee wages for furloughed worker time. During October, employers must pay the NIC and pension contributions plus 20% of the employee wages for furloughed worker time. The scheme ends on 31 October.
HMRC has created a calculator to assist employers with their calculations. It is worth reading HMRC’s specific guidance to understand exactly how to calculate CJRS and deal with the RTI implications. Our experience to date is that the calculations are not as simple as many employers had hoped, particularly where there are salary sacrifice arrangements.
HMRC has now given worked examples to help employers calculate their claim here.
Personal service companies paying their director in both salary and dividends will only be able to claim a grant for the salary element for the furloughed director.
Whilst furloughed employees are not working, they are not subject to the usual National Minimum Wage (NMW) regulations. However, there are some anomalies to this such as in relation to online training – see below. Care will be needed if employees return to part time working after 1 August.
It should be noted that furlough payments should be used for their intended purpose and that if they are not passed on to employees HMRC may refuse subsequent claims. Similarly, HMRC would not expect to agree a Time to Pay Arrangement that includes the NIC (employer and employee) and PAYE payments due on money’s received through the furlough scheme.
What about holiday pay?
Employees continue to accrue annual leave and if they take holiday during a period of furlough, they are entitled to holiday pay at their normal rate of pay in accordance with the Working Time Regulations. It is worth noting that HMRC has stated that it will continue to keep policy on holiday pay under review. HMRC’s current guidance on holiday pay is here.
Note that grants may not be used to substitute redundancy payments.
What is the minimum furlough period?
There is a minimum furlough period of 3 consecutive weeks and whilst employees may be furloughed multiple times, each separate instance must be for a minimum period of 3 consecutive weeks. When an employee returns to work they must be taken off furlough. Employees must be added to the scheme by 10 June (so that they meet the furlough days requirement by 30 June when the initial version of the scheme ends).
We offer benefits in kind through a salary sacrifice arrangement, how are they treated?
Benefits in kind are not part of basic salary for the furloughed wages calculation. Similarly, it is the contractual pay (after salary sacrifice) that is used for the furloughed wages calculation, for example, where pension contributions are made through salary sacrifice.
HMRC have stated that all of the grant received to cover an employee’s furloughed pay must be paid to them in the form of money. No part of the grant may be netted off to pay for the provision of benefits or a salary sacrifice scheme.
However, HMRC says that it regards COVID-19 as a ‘lifestyle event’ so it would be possible to amend or revoke salary sacrifice arrangements going forward if the relevant contractual arrangements are updated accordingly when an employee is put on furlough (appropriate employment law advice should be taken).
Read more on the CJRS implications of salary exchange and optional remuneration arrangements.
How will it be paid?
Employers will need to make a claim via HMRC’s online portal The HMRC guidance provides detail on the information an employer will need to be able to make a claim. Note that employers can only make one claim in any three week period which is the minimum time an employee may be furloughed for.
Once HMRC has processed the employer’s claim it will make payment by BACs into their nominated UK bank account. If employers have not already paid the employee, then they must pay the employees all of the grant they received for their gross pay. No fees may be charged from the money which is granted. The normal RTI return process must apply to all payments to employees – read HMRC guidance.
If an employer uses an agent who is authorised to act for their PAYE purposes, the agent will be able to make the claim on the employer’s behalf. However, if the employer uses a file-only agent, they will not be able to provide this service, but they will be able to provide the employer with the information needed to make the claim.
Is the payment taxable?
Yes, both on the employee and the employer. When furloughed employees are paid through RTI, the employer must make the usual PAYE, NIC and automatic enrolment deductions.
Employers must treat the grant as taxable income for corporation/income tax purposes but can deduct employment costs as normal when calculating their taxable profits.
Note that individual households who have furloughed domestic staff (e.g. nannies) are not taxable on grants received under the scheme. However, the domestic staff are subject to PAYE/NIC on their wages as normal.
HMRC has not provided specific guidance on the VAT status of the payment. However, the scheme is described as providing a ‘grant’ and this is likely to be treated as outside the scope of UK VAT on the basis that there is no underlying supply from the claimant to the Government. Of course, as with all new schemes, we would recommend keeping a watchful eye on announcements.
What happens if we have made a mistake in our furlough claim?
You can delete your claim within 72 hours and start again. If you spot a mistake after that time, when you make your next claim you can state the past over-claims of furlough payments and correct it by reducing the amount claimed for the current period. Employers who are no longer making CJRS claims can also correct errors in past claims by repaying a lump sum to HMRC - read details.
Do CJRS payments have to be counted for EU State Aid limits?
HMRC has now confirmed that the CJRS grant is not considered state aid because it is available to all businesses. See BEIS Guidance.
What if instead of furloughing employees we pay them reduced wages and/or cut their hours during the crisis instead?
You should take legal advice on any arrangement to reduce employees’ contractual hours or wages. Please also bear in mind that employers must continue to pay at least the minimum wage per hour to employees who continue to work and HMRC will continue to take enforcement action against those that do not. A claim for CJRS may not be made in respect of these workers, although from 1 August 2020 the rules will be changed to reflect that part time working is permissible. Full detail of the new arrangements has not yet been released.
What about training, can furloughed employees take part in training without breaching the rules?
Yes, any furloughed worker can take part in remote/online training (the government is encouraging it to maintain skills). For example, a furloughed apprentice may need to continue their study course online. This training must not however generate revenue for the business or (an associated business) or should not involve the provision of services to the business. However, all workers that undertake training will still need to be paid at least the appropriate NMW for the hours that they spend training. Therefore, for some employees, employers may need to top up furloughed pay for the period/s in which they undertake training.
What about people I laid off in my business the week before this announcement, because I did not have work for them due to Coronavirus, can I still claim for them?
The purpose of this scheme is to protect jobs, therefore provided that you did not lay staff off prior to the 1 March and you now reinstate them onto the payroll, you can then claim for them. We would recommend that employment law advice is sought particularly where termination payments have been made as unwinding the arrangement may be complex. If you are still considering making staff redundant, it is important that redundancy and termination payments are handled properly, including NIC payments where the termination takes place after 5 April 2020.
For further information on the support available for employers, please get in touch with your usual BDO contact.