Job Retention Scheme #2 – Goes Live

As we have reported previously, the extension to the Coronavirus Job Retention Scheme goes live this week (1 July).  The guidance has now been published via updates to existing guides.

The five documents employers need are: 

Although announced as an extension to the current scheme, the second version of the scheme is very different and is more complicated.

A summary of the basics:

Who is eligible to be furloughed under the new scheme?

Only employees who have been furloughed for at least three weeks on or before 30 June (starting on or before 10 June under the old scheme) can be furloughed after 1 July. The only exceptions to this are where parents return to work after taking maternity, shared parental leave, adoption, paternity or parental bereavement leave.

Duration of furlough

From 1 July, you will be able to bring back previously furloughed employees for any amount of time and on any pattern of work and claim a grant for the hours not worked.  For example, if your employee normally works five days a week and you only need them to work for two days, you can furlough them for the remaining three days. If business picks up, you might want them to work for three days and be furloughed for two.  The option is still available to furlough employees for all of their hours.
If you re-furloughed after 10 June, you have to wait the full three weeks before you can move the employee onto the new scheme, regardless of whether this ends after 1 July.

Limits on numbers of people you can furlough from 1 July

The numbers of employees you can furlough in any period starting from 1 July cannot exceed the maximum numbers of employees you claimed for under the old scheme.

Claim periods

    You must submit any claims under the old scheme by Friday 31 July

    After 1 July, you cannot submit claims that cross calendar months. This means that if you have staff whose furlough spans June and July, you'll need to submit separate claims for June and July - even if they have been furloughed continuously. 
    Your claim period is made up of the days for which you are claiming a grant. Claim periods starting on or after 1 July must (usually) start and end within the same calendar month and must last at least seven days. You must include all furloughed staff in one claim even if they are paid at different times and the government recommends that, if you can, you should match your claim period to the dates you process your payroll.
    One point to bear in mind is that you can submit a claim up to 14 days before the end of the relevant claim period. However, if you do this and the number of days your staff work changes, you'll need to adjust the claim next time. That doesn't sound too difficult if you have over-claimed, but if you have under-claimed, you will have to contact HMRC for help. The government therefore recommends that you do not 'claim until you are sure of the exact number of hours your staff will have worked during the claim period'

    Working out pay under the new scheme

    If you do not intend to ask staff to return to work, your pay calculations will not change much from the old scheme (although your contribution will increase from 1 August and thereafter on the 1st of each month).

    However, if your staff do return to work part-time you will need to work out how many hours each employee usually works and deduct this from the number of hours they have been furloughed by following a series of complicated stages. 
    First of all, you will need to decide if your employee has fixed or variable hours. If their pay depends on the number of hours they have worked, or they are not contracted to work a fixed number of hours, use the variable calculation - otherwise use the fixed hours calculation.  This is the most difficult part of the new scheme and the Government guidance provides a number of examples.

    Keeping records

    As we always say, you will need to keep a copy of all records including:
      • the amount claimed and the claim period for each employee
      • the claim reference number
      • your calculations
      • for employees who are flexibly furloughed, their usual hours including any calculations and the actual number of hours they have worked. 

    Written agreement

    You will need a new written agreement to confirm the new furlough arrangement.  However, If the employer is leaving the scheme unchanged i.e. continuous full-time furlough, then no further agreement is needed.  Again, we recommend keeping a record of why employees have been selected to return full-time, part-time, or remain on full-time furlough, to protect against any future employment claims.

    The Old Scheme, Common Errors

    The following are some of the common errors/issues we are hearing about in respect of making claims and illustrate our advice to re-check your earlier claims. 

    • Employers National Insurance Contributions – check that in respect of Employers National Insurance that you factored in the Employment Allowance. The Allowance means that businesses paying less than £100,000 in NICs each year, can apply for up to £4,000 of tax relief on their NICs bill. Many businesses will have taken advantage of the allowance to reduce their NICs bill but forgotten to factor it into their furloughing applications, meaning they are effectively applying for double coverage for NICs; 
    • Period of calculation - Employers calculating the furlough payment incorrectly for an employee who was furloughed part way through a pay period. The employer has used the normal method for apportioning payments, e.g. number of working days paid at annual salary/260 or 261.

    For example, an employee works Monday to Friday and is paid £2,000.00 per month. In March they are working for 10 days and furloughed for 12 following lockdown;

    Employer Calculation - Annual Salary / Working days in year * Number of working days furloughed = £24,000.00 / 261 * 12 * 80% = £882.76;

    HMRC Calculation - Monthly Salary * 80% * number of qualifying furloughed days in month / number of days in month = £2,000 * 80% * 16 / 31 = £825.80.

    In this example the employer overclaimed £56.96 plus the associated employer’s NI and pension

    • Salary Sacrifice - Employer operates a salary sacrifice scheme and claimed 80% of the pre-tax notional salary, instead of 80% of the post-sacrifice salary; 
    • Employees working – It has been stressed that an employee cannot undertake any work while on furlough, which means no work. By mid-June, more than 1,900 reports of fraudulent furlough claims had been made, which is expected to increase, as some employees start to be made redundant. 

    HMRC understand that sometimes you might make an error in your claim. If you have made an error in a claim that has resulted in an over-claimed amount, you must pay this back to HMRC.  You can inform HMRC of an over-claimed amount as part of your next claim. When making your claim, you will be prompted as to whether you need to reduce the amount to take account of a previous error. Your new claim amount will be reduced to reflect this. You do not need to take further action but should keep a record of this adjustment for six years.  If you have made an error in a claim and do not plan to submit further claims, details of how to make a repayment to HMRC can be found HERE.

    Although HMRC stated that they are going to investigate the reports, and respond with fines or criminal action if evidence of intentional fraud is found, they also said that they will not penalise genuine mistakes.  Having good detailed records will help defend any challenge by HMRC to an error.

    We cannot stress enough the importance of following and using the Government guidance via links at the start of this article and keeping detailed records and workings. 

    As ever, matters are still developing and we will endeavour to keep you up to date, flag to you opportunities and signpost to the key details as best as we can via updates.  A summary of the Government’s support schemes can be found at our website, including a list of non-Government funding opportunities, which we update regularly and can be found HERE.

    We know that this is a very difficult time for all businesses and some difficult decisions are having to be made.  We have spoken to hopefully all of you and if not, we would like you to know that we are here ready to help if you need us to provide advice, deal with queries, or just be a business sounding board.

    Please do not hesitate to contact us if you wish to discuss anything covered in the newsletter or any tax, accounting or business-related matter.