The Coronavirus Job Retention Scheme is a temporary scheme open to all UK employers starting from 1 March 2020. The scheme (as at 12 May) will continue until the end of October.
Specifically, the scheme will run in its current form until the end of July and then changes, to allow more flexibility, will come in from the start of August. These changes include furloughed workers being able to return to work part-time with employers being asked to pay a percentage towards the salaries of their furloughed staff. The employer payments will supplement a reduced contribution from the government, but ensuring that staff continue to receive 80% of their salary, up to £2,500 a month.
More specific details and information around its implementation will be made available by the end of May.
Employers can use a portal to claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. Employers can use this scheme anytime during this period.
UK employers can claim for furloughed employees that were employed and on their PAYE payroll on or before 19 March 2020. This means that the employee must have been notified to HMRC through an RTI submission notifying payment in respect of that employee on or before 19 March 2020.
Who can claim
Any UK organisation with employees can apply.
Businesses must have created and started a PAYE payroll scheme on or before 19 March 2020 and have a UK bank account to be eligble for this scheme.
Where a company is being taken under the management of an administrator, the administrator will be able to access the Job Retention Scheme.
Apprentices can be furloughed in the same way as other employees and they can continue to train whilst furloughed.
However, businesses must pay Apprentices at least the Apprenticeship Minimum Wage (AMW), National Living Wage (NLW) or National Minimum Wage (NMW) as appropriate for all the time they spend training. This means businesses must cover any shortfall between the amount that can be claimed for their wages through this scheme and their appropriate minimum wage.
Public Sector Organisations
The government expects that the scheme will not be used by many public sector organisations, as most public sector employees are continuing to provide essential public services or contribute to the response to the coronavirus outbreak.
Where employers receive public funding for staff costs and that funding is continuing, HMRC expects employers to use that money to continue to pay staff in the usual fashion – and correspondingly not furlough them. This also applies to non-public sector employers who receive public funding for staff costs.
Organisations who are receiving public funding specifically to provide services necessary to respond to COVID-19 are not expected to furlough staff.
In a small number of cases, for example where organisations are not primarily funded by the government and whose staff cannot be redeployed to assist with the coronavirus response, the scheme may be appropriate for some staff.
Individuals can furlough employees (e.g child minding/ nannies) provided they pay them through PAYE and they were on their payroll on, or before, 19 March 2020.
Where a company is being taken under the management of an administrator, the administrator will be able to access the Job Retention Scheme. However, HMRC would expect an administrator would only access the scheme if there is a reasonable likelihood of rehiring the workers. For instance, this could be as a result of an administration and pursuit of a sale of the business.
Employees you can claim for
Employers can only claim for furloughed employees that were on their PAYE payroll on or before 19 March 2020 and which were notified to HMRC on an RTI submission on or before 19 March 2020.This means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 19 March 2020. Employees that were employed as of 28 February 2020 and on payroll (i.e. notified to HMRC on an RTI submission on or before 28 February) 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.
Employees can be on any type of employment contract, including full-time, part-time, agency, flexible or zero-hour contracts. Foreign nationals are eligible to be furloughed. Grants under the scheme are not counted as ‘access to public funds’, and employers can furlough employees on all categories of visa.
To be eligible for the grant, when on furlough, an employee cannot undertake work for, or on behalf, of the organisation or any linked or associated organisation. This includes providing services or generating revenue. Employers are free to consider allocating any critical business tasks to staff that are not furloughed. While on furlough, the employee’s wage will be subject to usual income tax and other deductions.
Employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.
To be eligible for the subsidy employers should write to their employee confirming that they have been furloughed and keep a record of this communication.
The Labour Relations Agency (LRA) have produced practical guidance to help employers with the Coronavirus Job Retention Scheme including a sample furlough letter. You can access this here. Please note you may need to seek legal advice.
If you made employees redundant or they stopped working for you after 28 February
If an employer has made employees redundant, or they stopped working on or after 28 February 2020, they can be re-employed, then put on furlough and their wages claimed for through the scheme. This applies to employees that were made redundant or stopped working after 28 February, even if they are not re-employed until after 19 March. This applies as long as the employee was on the employer's payroll as at 28 February and had been notified to HMRC on an RTI submission on or before 28 February 2020. This means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 28 February 2020
If an employee has had multiple employers over the past year, has only worked for one of them at any one time, and is being furloughed by their current employer, their former employer/s should not re-employ them, put them on furlough and claim for their wages through the scheme.
If your employees are working reduced hours
If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme.
If an employee is on unpaid leave
If an employee started unpaid leave after 28 February 2020, employers can put them on furlough instead. If they proceed, employers should pay them at least 80% of their regular wages, up to the monthly cap of £2500.
If an employee went on unpaid leave on or before 28 February, employers cannot furlough them until the date on which it was agreed they would return from unpaid leave.
If your employee is self-isolating or on sick leave
If an employee is on sick leave or self-isolating as a result of Coronavirus, they will be able to get Statutory Sick Pay, subject to other eligibility conditions applying. The Coronavirus Job Retention Scheme is not intended for short-term absences from work due to sickness, and there is a 3 week minimum furlough period.
Short term illness/ self-isolation should not be a consideration in deciding whether to furlough an employee. If, however, employers want to furlough employees for business reasons and they are currently off sick, they are eligible to do so, as with other employees. In these cases, the employee should no longer receive sick pay and would be classified as a furloughed employee.
Employers are also entitled to furlough employees who are being shielded or off on long-term sick leave. It is up to employers to decide whether to furlough these employees. Employers can claim back from both the Coronavirus Job Retention Scheme and the SSP rebate scheme for the same employee but not for the same period of time. When an employee is on furlough, employers can only reclaim expenditure through the Coronavirus Job Retention Scheme, and not the SSP rebate scheme. If a non-furloughed employee becomes ill, needs to self-isolate or be shielded, then employers might qualify for the SSP rebate scheme, enabling them to claim up to two weeks of SSP per employee.
If your employee becomes sick while furloughed
Furloughed employees retain their statutory rights, including their right to Statutory Sick Pay. This means that furloughed employees who become ill must be paid at least Statutory Sick Pay. It is up to employers to decide whether to move these employees onto Statutory Sick Pay or to keep them on furlough, at their furloughed rate.
If a furloughed employee who becomes sick is moved onto SSP, employers can no longer claim for the furloughed salary. Employers are required to pay SSP themselves, although may qualify for a rebate for up to 2 weeks of SSP. If employers keep the sick furloughed employee on the furloughed rate, they remain eligible to claim for these costs through the furloughed scheme.
Businesses can claim for furloughed employees who are shielding in line with public health guidance (or need to stay home with someone who is shielding) if they are unable to work from home and they would otherwise have to make them redundant.
Employees with caring responsibilities
Employees who are unable to work because they have caring responsibilities resulting from coronavirus (COVID-19) can be furloughed. For example, employees that need to look after children can be furloughed.
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.
If your employee is on a fixed-term contract
Employees on fixed-term contracts can be furloughed. Their contracts can be renewed or extended during the furlough period without breaking the terms of the scheme. Where a fixed-term employee’s contract ends because it is not extended or renewed businesses will no longer be able to claim a grant for them.
Eligible individuals who are not employees
As well as employees, the grant can be claimed for any of the following groups, if they are paid via PAYE: * office holders (including company directors) * salaried members of Limited Liability Partnerships (LLPs) * agency workers (including those employed by umbrella companies) * limb (b) workers
The guidance below sets out specific considerations for those individuals who are paid via PAYE, but who are not necessarily employees in employment law. Unless explicitly set out below, all other guidance is applicable to these cases and should be followed.
Office-holders can be furloughed and receive support through this scheme. The furlough, and any ongoing payment during the furlough period, will need to be agreed between the office-holder and the party who operates PAYE on the income they receive for holding their office. Where the office-holder is a company director or member of a Limited Liability Partnership (LLP), the furlough arrangements should be adopted formally as a decision of the company or LLP.
As office-holders, salaried company directors are eligible to be furloughed and receive support through this scheme. Company directors owe duties to their company which are set out in the Companies Act 2006. Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, the board can decide that such directors should be furloughed. Where one or more individual directors’ furlough is so decided by the board, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned.
Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose.
This also applies to salaried individuals who are directors of their own personal service company (PSC).
Salaried members of Limited Liability Partnerships (LLPs)
Members of LLPs who are designated as employees for tax purposes (‘salaried members’) under the Income Tax (Trading and Other Income) Act (ITTOIA) 2005 are eligible to be furloughed and receive support through this scheme.
The rights and duties of a member of an LLP are set out in an LLP agreement and in the absence of an agreement, default provisions in the LLP Act 2000, based upon company and partnership law. Such an agreement may include a separate agreement between the LLP and an individual member setting out the terms applicable to that member’s relationship with the LLP.
To furlough a member, the terms of the LLP agreement (or any such agreement between the LLP and the member) may need to be varied by a formal decision of the LLP, for example, to reflect the fact that the member will perform no work in the LLP for the period of furlough, and the effect of this on their remuneration from the LLP. For an LLP member who is treated as being employed by the LLP (in accordance with s863A of ITTOIA 2005), the reference salary for this scheme is the LLP member’s profit allocation, excluding any amounts which are determined by the LLP member’s performance, or the overall performance of the LLP.
Agency workers (including those employed by umbrella companies)
Where agency workers are paid through PAYE, they are eligible to be furloughed and receive support through this scheme, including where they are employed by umbrella companies.
Furlough should be agreed between the agency, as the deemed employer, and the worker. As with employees, agency workers should perform no work for, through or on behalf of the agency that has furloughed them while they are furloughed, including for the agency’s clients.
Where an agency supplies clients with workers who are employed by an umbrella company that operates the PAYE, it will be for the umbrella company and the worker to agree on whether to furlough the worker or not.
Limb (b) Workers
Where Limb (b) Workers are paid through PAYE, they can be furloughed and receive support through this scheme.
Those who pay tax on their trading profits through Income Tax Self-Assessment may instead be eligible for the Self-Employed Income Support Scheme (SEISS).
Contractors with public sector engagements in scope of IR35 off-payroll working rules (IR35)
Public sector bodies will follow the Crown Commercial Services guidance in the vast majority of cases. In a small number of cases, for example where organisations are not primarily funded by the government and whose staff cannot be redeployed to assist with the coronavirus response, it may be appropriate to claim under this scheme. Contractors who are deemed employees according to the off-payroll working rules might be eligible for this scheme.
In this scenario, if the public sector organisation wished to furlough a contractor, they would have to confirm this with both the contractor’s Personal Service Company (PSC) and the fee-payer (as set out in the off-payroll working rules, usually the agency paying the contractor’s PSC). It should be formally agreed between these parties that the contractor is to do no work for the public sector organisation during their period of furlough. The fee-payer would be able to apply for the furlough payment of 80% of the monthly contract value, up to a maximum of £2,500, as well as the employer NICs on that subsidised wage. The fee-payer would then pay at least the amount of wage-grant received to the PSC, and report the payment via PAYE using the contractor’s details, making the usual tax and National Insurance contributions (NICs) deductions for contracts in scope of the off-payroll rules. The PSC would then be required to report the amount it pays to the contractor as deemed employment income via PAYE using box 58A on the PAYE Real Time Information return.
Where a contractor is continuing to receive payments from a public sector client (including through the CJRS or other any other scheme), income from this client should be excluded from any calculation of the reference pay for the purposes of the CJRS if the contractor also decides to furlough themselves as an employee or director of their own company.
Employee transfers under TUPE and on a change in ownership
A new employer is eligible to claim under the CJRS in respect of the employees of a previous business transferred after 19 March 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership.
Read more on HMRC TUPE rules and HMRC business sucession guidance.
Where a group of companies have multiple PAYE schemes and there is a transfer of all employees from these schemes 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.
If your employee does volunteer work
A furloughed employee can take part in volunteer work, if it does not provide services to or generate revenue for, or on behalf of an organisation or a linked or associated organisation. An organisation can agree to find furloughed employees new work or volunteering opportunities whilst on furlough if this is in line with public health guidance.
If your employee undertakes training
Furloughed employees can engage in training, as long as in undertaking the training the employee does not provide services to, or generate revenue for, or on behalf of their organisation or a linked or associated organisation. Furloughed employees should be encouraged to undertake training.
Where training is undertaken by furloughed employees, at the request of their employer, they are entitled to be paid at least their appropriate national minimum wage for this time. In most cases, the furlough payment of 80% of an employee’s regular wage, up to the value of £2,500, will provide sufficient monies to cover these training hours. However, where the time spent training attracts a minimum wage entitlement in excess of the furlough payment, employers will need to pay the additional wages (see National Minimum Wage Section for more details).
The normal rules for maternity and other forms of parental leave and pay apply.
Employers can claim through the scheme for enhanced (earnings related) contractual pay for employees who qualify for either:
- maternity pay
- adoption pay
- paternity pay
- shared parental pay
What you can claim
- 80% of employees’ wages (even for employee’s on National Minimum Wage) - up to a maximum of £2,500 per month. Do not claim for the worker’s previous salary.
- Employer National Insurance contributions that are paid on the subsidised furlough pay.
Employer pension contributions that are paid on the subsidised furlough pay, up to the level of the minimum automatic enrolment employer contribution.The maximum level of grant for employer pension contributions on subsidised furlough pay is set in line with the minimum automatic enrolment employer contribution of 3% on qualifying earnings. Grants for pension contributions can be claimed up to this cap provided the employer will pay the whole amount claimed to a pension scheme for the employee as an employer contribution.
Employers can choose to top up employee’s salary, but you do not have to. Employees must not work or provide any services for the business while furloughed, even if they receive a top-up salary.
Grants will be prorated if an employee is only furloughed for part of a pay period.
Claims should be started from the date that the employee finishes work and starts furlough, not when the decision is made, or when they have written to confirm their furloughed status.
Working out employees’ wages is different depending on what type of contract they are on, and when they started work. The BDO team can help you with these calculations.
Full or part time employees on a salary
Claim for the 80% of the employee’s salary, as in their last pay period prior to 19 March 2020.
If, based on previous guidance, employers have calculated their 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) employers can choose to still use this calculation for their first claim.
Employees whose pay varies
If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, employers 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, employers can claim for an average of their monthly earnings since they started work.
If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
Once an employer has worked out how much of an employee’s salary thyey can claim for, they must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions they are entitled to claim. The BDO tax team can help you with this process.
Employer National Insurance and Pension Contributions
All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees.
As employers can choose to provide top-up salary in addition to the grant, Employer 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 (which is £512 per month until 5th April and will be £520 per month from 6th April 2020 onwards).
Past overtime, fees, commission, bonuses and non-cash payments
Employers can claim for any regular payments they are obliged to pay their employees. This includes wages, past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non-cash payments should be excluded.
Benefits in kind and salary sacrifice schemes
The reference salary should not include the cost of non-monetary benefits provided to employees, including taxable benefits in kind. Similarly, benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should also not be included in the reference salary. 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.
Normally, an employee cannot switch freely out of a salary sacrifice scheme unless there is a life event. HMRC agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements if the relevant employment contract is updated accordingly.
Apprenticeship Levy and Student Loans
Both the Apprenticeship Levy and Student Loans should continue to be paid as usual. Grants from the Job Retention Scheme do not cover these.
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, 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, taking into account the increase in minimum wage rates from 1 April 2020. As such, employers will need to ensure that the furlough payment provides sufficient monies to cover these training hours. Where the furlough payment is less than the appropriate minimum wage entitlement for the training hours, the employer will need to pay the additional wages to ensure at least the appropriate minimum wage is paid for 100% of the training time.
Where a furloughed worker is paid close to minimum wage levels and asked to complete training courses for a substantial majority of their usual working time, employers are recommended to seek independent advice or contact Acas.
Returning from statutory leave
Statutory leave includes maternity leave, paternity leave, shared parental leave, adoption leave, sick leave and parental bereavement leave.
In line with other employees, claims for full or part time employees returning from statutory leave after 28 February 2020 should be calculated against their salary, before tax, not the pay they received whilst on statutory leave.
Claims for those on variable pay, returning from statutory leave should be calculated using either the:
- same month’s earning from the previous year
- average monthly earnings for the 2019-2020 tax year.
What you’ll need to make a claim
Employers should discuss with their staff and make any changes to the employment contract by agreement. Employers may also need to seek legal advice on this process.
To claim, employers will need:
- your ePAYE reference number
- the number of employees being furloughed
- 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
Further detail, including everything employers need to prepare ahead of making a claim, can be found here.
As well as above, employers will need to calculate the amount they are claiming as HMRC will retain the right to retrospectively audit all aspects of your claim. The BDO Tax team, are here to help with this.
Organisations 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.
What to do after you’ve claimed
Once HMRC have confimred that an employer is eligible for the grant, they will pay it via BACS payment to a UK bank account.
Employers should make claims in accordance with actual payroll amounts at the point at which they run theirr payroll or in advance of an imminent payroll.
Employers must pay the employee all the grant received for their gross pay, no fees can be charged from the money that is granted.
Employees that have been furloughed
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.
If contractually allowed, employees are permitted to work for another employer whilst placed on furlough.
Income tax 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.
Employers will be liable to pay Employer National Insurance contributions on wages paid, as well as automatic enrolment contributions on qualifying earnings unless an employee has opted out or has ceased saving into a workplace pension 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 BDO Northern Ireland Tax team is here to help you in all aspects of cliaming this financial support. Contact them today.