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The government scheme provides support provide support for 80% of the regular wage or salary of furloughed employees to a maximum of £2,500 per month for four months commencing from 1 March 2020 up to 30 June with claims being made up to 31 July. A extension to the scheme from 1 July to 31 October 2020 will allow for “flexible furloughing” of employees with reducing levels of government support and increasing contributions required from employers.
Claims can be submitted to HMRC online from 20 April 2020.
CJRS support is by way of a government grant to reimburse employers which make a claim for furloughed employees. For the period of the scheme up to 31 July, employers are not required under CJRS to fund the difference between the amount of the government support and the employees’ regular salary (although they may be required to do so under employment law) however employers must pay all the grant amounts received for gross pay to the employee in the form of money.
Flexible furloughing from 1 July will allow employers to bring back employees who have been furloughed for any amount of time whilst still being able to make a claim for the employee’s normal hours which are not worked. There is no minimum furlough period under the flexible furlough scheme and employees may be furloughed for as little as a few hours.
The CJRS will close to new entrants from 30 June and therefore flexible furloughing will only be available in respect of employees who have been furloughed for at least one full three week period prior to 30 June. It is not necessary for the three week period to be that immediately prior to 30 June. It does however mean any employees being furloughed for the first time must be placed on furlough by 10 June to be eligible for a claim under flexible furloughing.
Employers will also be required to submit all CJRS claims for periods to 30 June by no later than 31 July. After 31 July on CJRS claims under the flexible furloughing scheme will be permitted.
From 1 July to 31 October employers will be required to make increasing contributions to the employees st as follows:
Further details on the flexible furlough scheme will be announced on 12 June and we will update this guidance as soon as these details are available.
The CJRS is available to any UK employer, including businesses, charities, recruitment agencies (for agency workers paid through PAYE) and public authorities, which meet two criteria:
The scheme covers everybody who is on the PAYE system through a company including employees on:
Claims can also be made where a company is being placed under management with an administrator.
Set out below are those details of CJRS which have been announced to date and incorporate answers to queries we have received from clients including:
Further updates to this article will be provided as and when further announcements are made however your queries are welcome and if we can provide an answer we will do so. Further information is also available from the government website via this link Coronavirus Job Retention Scheme
What is furlough?
Furlough is not a term which has previously been used in employment or tax legislation in the UK. A dictionary definition of furlough is a forced temporary suspension of employment for a specified period of time during which employees do not usually receive wages.
It is the government intention in introducing CJRS to avoid lay-offs or redundancies by encouraging employers to adopt the alternative of furloughing employees. The furlough will therefore result in the employee continuing in employment under their employment contract.
Whilst on furlough, an employee can not undertake work for or on behalf of the employer organisation. This includes providing services to or generating revenue for or on behalf of the employer.
Subject to the above restrictions, the employee can undertake training or volunteer provided these activities are undertaken in accordance with the Public Health guidance. If employees are required to complete training courses whilst on furlough they must be paid at least the National Living Wage or National Minimum Wage for the time spent training, even if this amount exceeds the 80% support provided by the government.
How long does a period of furlough last?
The shortest period of furlough under CJRS for periods up to 30 June is three weeks. An employee can be placed on furlough more than once and one period of furlough can follow immediately after a preceding period.
It is possible to furlough staff in alternative periods of three weeks, so if, for example, some employees undertaking the same work come off furlough as other are unavailable to work it is possible to replace the unavailable staff (although see below regarding employees being ineligible for furloughing if they are on sick leave).
CJRS provides for support for employees who have been furloughed for up to four months commencing from 1 March 2020 and for the subsequent period, under the flexible furlough scheme, up to 31 October. The support commences on the date the period of furlough commences which can be back dated to 1 March 2020 where furloughing commenced on this date.
The government has advised the terms of the CJRS under which support is provided for periods up to 31 October including the flexible furlough arrangements which start from 1 July and are subject to increasing levels of employer contribution to the employees costs.
Under the flexible furlough scheme employers can bring back to work, for any amount of time, those employees who have been furloughed for at least one full three week period prior to 30 June still being able to make a claim for the employee’s normal hours which are not worked. No minimum period of flexible furloughing has been advised however more details will be announced on 12 June.
The government have advised the period of CJRS may be extended however the current announcement only provides support for periods of furlough up to 31 October 2020.
Which employees qualify?
To qualify the employees must have been on the PAYE payroll on 19 March 2020 and a Real Time Information submission made on or before that date which includes payment of that employee.
The employee can be on any type of contract, including:
Employees made redundant or placed on unpaid leave after 28 February and before 19 March 2020 will qualify if they are rehired by the employer before being placed on furlough.
Employees on unpaid leave do not qualify unless they were placed on unpaid leave after 28 February 2020.
Employees on Statutory Sick Pay, including those self-isolating as a result of complying with Public Health guidelines, are not eligible for the period of the sick leave however they are eligible at the end of this period.
Under the flexible furloughing scheme only those employees who have been furloughed for at least one full three week period prior to 30 June will be eligible for a CJRS claim from 1 July.
Qualification criteria for the selection of employees for furlough should apply the usual discrimination and equality employment law requirements. The selection criteria may include:
Selected employees may not work whilst on furlough. Employees who are working but on reduced hours or for reduced pay they will not be eligible for CJRS.
What about owner managed businesses?
Many owner managed company director/shareholders pay small salaries and take the balance of their income as dividends.
As noted under “How much can be claimed?” below, CJRS only applies to employee’s regular wage or salary and does not extend to dividends.
The owner managed company must have been paying a salary through a payroll to be eligible for a grant under CJRS. The grant is calculated by reference to the employee’s actual regular wage or salary before tax (excluding fees, commissions and bonuses) as of 19 March 2020 (as this was a late notification of the date change the first claim can be based on the regular wage or salary as of 28 February 2020).
For most director/shareholders the regular salary will amount to £719 for 2019/20 (£732 for 2020/2021 per month which would be consistent with a maximum claim of 80% = £575 for 2019/20 (£585.60 for 2020/21 per month.
To be eligible the director/shareholder must cease providing services to or generating revenue for or on behalf of the company.
Where there is a sole director/shareholder this will be highly difficult to justify save by notifying all suppliers, customers and other business contacts that the business has been suspended pending the end of the Coronavirus crisis and ceasing work on improving the business or planning for the recommencement of trading.
Where there are two or more director/shareholders of an owner managed business it may be possible for all except one of the directors to be furloughed however care will have to be taken to ensure only that director or those directors not on furlough are working.
How are employees placed on furlough?
Employees should be placed on furlough in accordance with their contract of employment. If there is no provision for furloughing an employee under their contract the arrangements will need to be put in place by negotiation.
Where more than 20 employees are to be furloughed without provision in their contracts, it may be necessary to engage collective consultation processes to agree to changes to terms of employment.
Employees’ contractual rights will continue during a period of furlough. Whilst a claim under CJRS does not require the employer to pay the difference between the amount of the CJRS claim and the employee’s regular wage, at least for periods up to 31 August, the employer may be required to do so under the contract of employment. Similarly, entitlement to holiday pay and sick pay as set out in the contract of employment will continue to apply regardless of a claim made under CJRS.
Once agreed, employers should write to their employee confirming that they have been furloughed and keep a record of this communication.
Employees placed on furlough can be made redundant whilst on furlough or immediately following a period of furlough subject to the normal redundancy procedures.
An employee may refuse to go on furlough when requested by the employer however they would then be at risk of redundancy or termination. Any redundancy or termination process which does result would have to be undertaken in line with the normal rules and procedures and employee protections would apply.
How and when to notify HMRC?
Claims under the CJRS must be submitted through the HMRC online system which available from 20 April 2020 at this link.
The online system will require employers to have a Government Gateway account and to enrolled for PAYE online services.
Employers which do not have an account can apply online at Government Gateway application and can also enrol online for PAYE at PAYE Online for employers.
The online system is set up as self-serve with online guidance in place to assist with calculating claims as HMRC will have limited capacity to address phone queries.
The following details must be submitted in respect of any claim:
The employer will need to retain the calculations of the amount being claimed as HMRC will retain the right to retrospectively audit all aspects of any claim.
For employers with fewer than 100 furloughed staff the information will be input directly online for each employee.
For employers with more than 100 furloughed staff a file of the information can be uploaded in one of the following file types .xls .xlsx .csv .ods
A claim can be submitted under CJRS every three weeks. The first claim to be made may include all amounts claimable backdated to the start of the scheme on 1 March 2020. A claim can be made in accordance with actual payroll amounts at the point at which the payroll is run or in advance of an imminent payroll.
All claims under CJRS for periods up to 30 June must be submitted to HMRC by no later than 31 July.
From 31 July only claims under the flexible furlough scheme may be submitted to HMRC.
When will the claim be paid?
HMRC expect to process claims within 2-4 working days of successful submission.
The BACS payment process will require 3-4 working days to process.
Claims should therefore be paid within 5-8 working days of submission.
HMRC have advised they are expecting phone demand on the submission process or payments to be beyond their capacity to offer a normal service. HMRC will call claimants with any queries they may have on claims submitted.
How much can be claimed?
The maximum CJRS grant for periods up to 30 June will be the lower of:
Plus
3. Employers National Insurance Contributions (NIC) and the minimum auto-enrolment employer pension contribution calculated by reference to this amount.
The maximum contribution available where standard rates of employers NIC and auto-enrolment employer pension contributions apply will be £2,500 + £245 (employers NIC) + £59 (employers pension contribution) = £2,804.
The maximum CJRS grant will change from 1 July under the flexible furloughing scheme as follows:
The employee’s regular wage will be calculated as set out below
Full time and part time employees
The employee’s actual regular wage or salary before tax including past overtime, fees and compulsory commission payments in their last pay period prior to 19 March 2020 (as this date was a late notification the first claim may be based on payments as of 28 February). Discretionary commission payments and bonuses (including tips) and non-cash payments (including salary sacrifice amounts).
Employees on variable pay
If the employee has been employed (or engaged by an employment agency business) for a full twelve months prior to the period of furlough the employee’s regular wage is the higher of:
If the employee has been employed for less than a year, the employee’s regular wage is the average of their monthly earnings since they started work.
If the employee started employment in February 2020, their earnings up to the date of furlough should be used and pro-rated to provide a monthly earnings figure.
Examples of these calculations are shown at the foot of this article.
Employers can, subject to the employees contract of employment, choose to pay the difference between the amount of the CJRS claim and the employee’s regular wage however they are not required to do so in order for a claim to be made under CJRS.
How are PAYE and employers pension contributions calculated?
Wages of furloughed employees will be subject to PAYE Income Tax and National Insurance which will be calculated in the usual manner and returned using the Real Time Information system as usual.
PAYE payments will continue to be payable on the due date (being the 19th of each month ie fourteen days after 5th of each month being the end of the tax month).
Auto-enrolment pension contributions on qualifying earnings for both employees and employers will be calculated and paid, unless the employee has chosen to opt-out or to cease saving into a workplace pension scheme.
What to do after you’ve claimed
Once the system for registering and reimbursing a claim is in place, HMRC will pay any approved claim BACS payment to a UK bank account.
All amounts claimed under CJRS must be paid or have been paid to the employee – no fees can be charged from the money that has been paid as a grant.
Tax Treatment of the CJRS grant
Payments received by the employer under CJRS are made to offset the deductible revenue costs incurred by the employer. The amount of the CJRS grant is therefore to be included as income in the employer’s calculation of its taxable profits for Income Tax and/or Corporation Tax purposes, in accordance with normal principles.
Employers can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.
Examples of CJRS calculations
The following examples of the how CJRS calculations would apply are provide courtesy of the Institute of Chartered Accountants in England and Wales and apply to claims made in respect of periods up to 31 July. From 1 August employers will be required to make increasing contributions to the employee costs and examples will be provided when further details are provided by the government on 12 June:
Example 1
X Ltd employs Mr A at an annual salary of £24,000, so £2,000 per month. Mr A has opted out of auto enrolment.
Each month, Mr A currently receives net pay of £1,655 which is after deducting PAYE Income Tax of £191 and employees NIC of £154. On this salary, X Ltd pays employers’ NIC of £177.
The available grant for the employer is the lower of
(a) 80% of £2,000, and
(b) £2,500
Plus employers’ NIC on this amount
So X Ltd claims a grant of £1,600 plus £122 = £1,722.
The net amount of cash required by X Ltd to furlough Mr A based on maintaining the existing salary is £2,000 + £177 – £1,722 = £455 per month.
If Mr A had not opted out of auto enrolment, X Ltd would also be making pension contributions on his behalf and would claim 80% of the employers element of the pension contribution.
It is a matter for employment law whether the employer is actually required to pay this top up. Employees and employers can agree to a different arrangement during the furlough.
Example 2
Y Ltd employs Mr B at an annual salary of £42,000, so £3,500 per month. Mr B has opted out of auto enrolment.
Each month, Mr B currently receives net pay of £2,675 which is after deducting PAYE of £492 and employees NIC of £333. On this salary, Y Ltd pays employers’ NIC of £383.
(c) 80% of £3,500 = £2,800, and
(d) £2,500
Plus employers NIC, £245, on this amount
So Y Ltd claims a grant of £2,500 plus £245 = £2,745.
The net amount of cash required by Y Ltd to furlough Mr A based on maintaining the existing salary is £3,500 + £383 – £2,745 = £1,138 per month.
As for Example 1, it is a matter for employment law whether the employer is actually required to pay this top up and employees and employers can agree to a different arrangement during their furlough.
Example 3
In the following illustration, the business has already closed as instructed by the government and is seeking clarification of our understanding of how the rules apply.
Mr & Mrs Fuller are the tenants of a pub. They have a substantial wet and food trade as the pub is in a coastal location and does good trade over the Summer. The pub is open all year round.
Mr & Mrs Fuller operate the pub through a limited company (Pubco). They take salaries of £8,600 each and withdraw profits of £30,000 each in the form of dividends. They live above the pub and work long hours being in the pub every day.
Pubco employs three permanent staff supplemented by extra seasonal staff in the Summer months and at Christmas.
The pub closed on 20 March as instructed by the Prime Minister. and following the Chancellor’s announcement on 20 March, Pubco has furloughed its staff other than Mr & Mrs Fuller who are still living above the pub and dealing with the company administration. The contracts of employment of the other staff have been varied to permit furloughing and the three permanent staff members have agreed to accept a pay reduction to 80% of the previous level. The seasonal staff for this year have not yet been hired.
Our understanding is that Pubco will be eligible to receive the CJRS grant for the monthly wages of the three permanent staff members. The seasonal staff were not on the payroll at 19 March and so are not eligible. No grant support is available to support the living costs of Mr & Mrs Fuller.
Mr & Mrs Fuller will need to look for alternative support while the pub remains closed.
Amanda graduated from Brunel University, with a joint honours degree, achieving a BSC and BA degree in Leisure Management and Television and film studies. Amanda started her career in a customer service role before joining the hotel group Le Meridien as an Events coordinator, she was in the hotel industry for seven years and during her time won an award from a major international airline for her outstanding attitude and dedication to customer service, which she achieved while working for the Rezidor hotel group in the position of Airline Crew Manager. Amanda has over 20 years experience in customer relations and event management.
