Coronavirus Job Retention Scheme – Update

On 20 March 2020 the Government announced measures to combat the number of employees that had already been/were going to be laid off or made redundant due to the downturn in business caused by the current Coronavirus pandemic.  More details of Coronavirus Job Retention Scheme have now been published.

What period does the scheme cover?

The scheme will initially operate for the period from 1 March 2020 to 31 May 2020.

When will the scheme be available?

It is expected to be up and running by the end of April.

How will I make claims?

Employers will use a portal, which is currently still being developed by HMRC, to make claims. It is not therefore possible to make any claims currently and the claims process will be entirely separate from the current PAYE system.

Once the portal is up and running, you can only submit one claim at least every 3 weeks which is the minimum length of time that an employee can be furloughed for. Claims can be backdated until 1 March 2020 if applicable.

Which businesses are eligible?

The scheme is open to all UK employers that had created and started a PAYE payroll scheme by 28 February 2020 and have a UK bank account.

All businesses, charities and other third sector organisations are eligible. This includes owner managed businesses.  But note that the rules of the scheme state that furloughed employees must not do any work at all for the business, including administration duties, which may make it hard for directors of smaller companies to qualify.

Which employees can I include in the scheme?

• Any employees who were on your payroll at 28 February 2020

• The scheme also covers employees who have been made redundant since 28 February 2020 so long as they are rehired

• Employees hired after 28 February 2020 cannot be furloughed or claimed for

A furloughed employee cannot do any work for or on behalf of the organisation. This includes providing services or generating revenue. While on furlough, the employee’s wage will be subject to usual income tax and other deductions.

If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and you will have to continue paying the employee through the payroll.

You do not need to place all your employees on furlough. However, those employees who you do place on furlough cannot undertake work for you.

How do I notify an employee that they are included?

You should discuss this with your staff and make any changes required to the employment contracts by agreement. If their contract does not include the relevant paragraph to change their status, then you will need their agreement in writing.

We would recommend that you seek legal advice.

You will also need to write to your employees advising them that they have been furloughed and keep a copy of this letter. An example of such a furlough letter is in the link below.

Example Furlough letter

How much can I pay the employee?

You can pay the employee their normal salary or 80% of their ‘regular wage’, or anywhere in between as long as this is clear in the furlough letter. 

However please note that you can only claim back the 80% of the employee’s ‘regular wage’ and that fees, commission and bonuses cannot be included in the calculation of the employee’s ‘regular wage’.

The payment to the employee will go through the payroll as normal and will be recorded on the employee’s payslip.

Is the payment taxable in the hands of the employee?

Yes, the payment is taxable income for the employee under the normal rules.

How much can I recover?

You can recover the lower of 80% of an employee’s regular salary or £2,500 per month, plus the associated Employer National Insurance contributions and the 3% minimum automatic enrolment employer pension contributions on paying those wages.

What about holiday pay?

Holiday pay will accrue under normal employment law regulations.

Can my employee work elsewhere or volunteer?

Note that during the Furlough period there is still an employment relationship in existence.  If your employment contract allows your employees to work elsewhere then they can take a paid job elsewhere or volunteer while under this scheme.

If your employees do take on work elsewhere, when they start back with you they will have to make sure that they can work their contracted hours and are not breaching the working time regulations and getting enough rest.

What are the rules if my employee also works for someone else?

The employee can be furloughed from each employment and same maximum of £2,500 can be claimed in each employment.

What if I have an employee already on Statutory Sick Pay?

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.

What if I have an employee on unpaid leave?

Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February 2020.

Can I include the Sub-contractors that I use?

No, these individuals are not employees and not on your payroll.

What about employees on zero/flexible hours contracts?

Zero-hour and flexible contracts can cover a whole range of working arrangements.

The 80% grant is applied to the higher of:

(1) the earnings in the same pay period in the previous year; or

(2) the average earnings in the 2019/2020 payroll year (or fewer if they have worked for less time than this, including a part month calculation if they were taken in February 2020).

What is minimum period that employee can be Furloughed?

The minimum period is 3 weeks

Can I include directors?

Yes, it seems that directors can be included but you must remember that to be furloughed, you cannot undertake any work for the company which includes all administration duties

Do dividends count in the calculations?

No, it is only salary element of your pay that can be included

Examples of How the scheme works

Example 1

Employee A has a salary of £24,000 (£2,000 per month) and has 3% Employer contribution and 5% Pension Contribution to auto enrolment scheme.

He normally receives net pay of £1,595 after deduction of PAYE of £191, Employee Nic of £154 and pension contribution of £100. The Employer NIC is £177 and employer pension is £60.

The available grant is the lower of:

1. £2,000 x 80%; and
2. £2,500

Plus Employers NIC and employer pension contribution

Therefore, based on this example the claim would be

£1,600 (£2,000 x 80%) plus £128 Employers NI plus £48 (£1,600 x 3%) Pension contribution   = £1,776.

Example 2

Employee B has a salary of £42,000 (£3,500 per month) and has 3% Employer contribution and 5% Pension Contribution to auto enrolment scheme.

He normally receives net pay of £2,500 after deduction of PAYE of £492, Employee Nic of £333 and pension contribution of £175. The Employer NIC is £383 and employer pension is £105.

The available grant is the lower of:

1. £3,500 x 80%; and
2. £2,500

Plus Employers NIC and employer pension contribution

Therefore, based on this example the claim would be:

£2,500 plus £245 Employers NI (on £2,500) plus £75 (£2,500 x 3%) Pension contribution   = £2,820

Tax Treatment of the Coronavirus Job Retention Grant

Any grants received will be treated 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.

You can read more about the Coronavirus Job Retention Scheme here:-

https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

 

Photo by Martin Sanchez on Unsplash

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.