HMRC have issued further information on the Job Retention Scheme. This is the scheme that supports employers by paying 80% of an employee’s salary, for those employees who are unable to work and would be laid off as a result of the Covid-19 crisis.
The current timeline is the scheme will go live at the end of April 2020.
We have taken the key points from the update and summarised them below. Many of which are in line with the paper we issued yesterday.
- Furloughed employees must have been on your PAYE payroll on 28 February 2020, and can be on any type of contract, including part-time employees, employees on agency contracts (who are not working) and employees on flexible or zero-hour contracts;
- The scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer. This covers those who were made redundant in recent weeks, mainly in the hospitality and leisure sector, before the Government support announcement;
- To be eligible for the subsidy, when on furlough an employee can not undertake work for or on behalf of the organisation. This includes providing services or generating revenue This is why we believe it will be difficult for business owners to claim, as noted in our previous updates. In addition to yesterday’s paper, somebody has raised the question of whether a director can ‘furlough’ themselves and leave the company without a director breaching Company Law. This is an ever-developing area, so hopefully more will come out re the position for business owners;
- 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 reduced pay, they will not be eligible for this scheme. You will have to continue paying the employee, as they are still working for you. This is where the employer must make the decision whether there is enough work for the employee or not;
- HMRC have emphasised the need to discuss the matter with employees and make any relevant changes to the employment contract by agreement with the employee. When employers are making decisions in relation to the process, including deciding who should be furloughed, equality and discrimination laws will apply in the usual way. You should seek legal advice on the process. If enough numbers of staff are involved, it may be necessary to engage in a collective consultation processes, to procure agreement to changes to terms of employment;
- To be eligible for the subsidy, employers need write to the employee confirming that they have been furloughed and keep a record of this communication. This is likely to be required, should HMRC audit the business at a later date;
- 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;
- If your employee is on unpaid leave they cannot be furloughed, unless they were placed on unpaid leave after 28 February;
- Employees on sick leave or self-isolating are paid Statutory Sick Pay and cannot be furloughed at that point but can be furloughed at the end of the sickness/isolation period;
- Employees who are shielding in line with public health guidance, can be placed on furlough;
- If your 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;
- A furloughed employee can take part in volunteer work or training, if it does not provide services to or generate revenue for or on behalf of the employer. This enables the employee to provide local or national volunteer support to the current crisis. However, if workers are required to complete online work-related training courses whilst they are furloughed (for example a trainee), then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised;
- There are rules for those employees on maternity Leave, contractual adoption pay, paternity pay or shared parental pay.
Working out the claim
- It is the employer who works out the claim and submits to HMRC;
- The employer will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage, above the £2,500 per month cap;
Fees, commission and bonuses are not be included.
- At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month. It is up to the employer if they choose to top up an employee’s salary beyond this;
- Calculation of the employee’s salary.
Full time and part time employees
- the employee’s actual salary before tax, as of 28 February 2020should be used to calculate the 80%.
Employees whose pay varies
If the employee has been employed for a full 12 months prior to the claim, you can claim for the higher of either:
- the same month’s earning from the previous year; or
- average monthly earnings from the 2019-20 tax year.
If the employee has been employed for less than a year, you 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.
- All employers remain liable for Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees;
- 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. (Please note the online training course exemption provided above where the NMW/NLW must be paid, if more than the 80%).
Once the online system is up and running, to claim, you 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);
- your bank account number and sort code for payment to be received;
- contact name;
- phone number;
You 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 2020 if applicable.
Further guidance on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions, will be issued before the scheme becomes live.
HMRC will retain the right to retrospectively audit all aspects of your claim.
Once HMRC have received your claim and you are eligible for the grant, they will pay via BACS payment to a UK bank account.
Closure of the scheme
Looking at the future, when the scheme is closed:
- You must decide, depending on your circumstances, as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy);
- Employees that have been furloughed have the same employment rights as they did previously on returning. That includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments;
- HMRC will continue to process remaining claims before terminating the scheme.
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.
Income Tax/Corporation Tax Treatment of the Coronavirus Job Retention Grant
Payments received by a business under the scheme are made to offset 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.
Full details can be found at HERE
HMRC have also issued a shorten version of the guidance for employees HERE
This is, along with most other Government initiatives, a developing announcement and further details will be announced by HMRC, whilst they are building a system to cope with these grant requests.