Updated 10th April 2020
Today (10th April) the Government released the specific information you will need to prepare in order to make a claim for the Job Retention Scheme:
If you’re eligible for the scheme, there are things that you can do now to be ready when the system is up and running later this month.
You’ll need to provide the following to make a claim:
- The bank account number and sort code you’d like HMRC to use when they pay your claim.
- The name and phone number of the person in your business for them to call with any questions.
- Yout Self-Assessment UTR (Unique Tax Reference), Company UTR or CRN (Company Registration Number).
- The name, employee number and National Insurance number for each of your furloughed employees.
- The total amount being claimed for all employees and the total furlough period.
Guidance on how to use the scheme
The government released its guidance on the Coronairus Job Retention Scheme which is supporting those employers who have had to ‘lay off’ workers (known as Furloughed workers). In summary the guidance states:
- Business, charities, recruitment agencies and public authorities can claim so long as the PAYE scheme was set up before 28th February
- Employers can claim 80% of the furloughed employees wages, up to a maximum of £2500 plus the associated Employers NI and the Employer Pension Contribution
- Employers can choose to ‘top up’ the furloughed employees wages up to full pay if they choose
- The payment to the employee is treated in the usual way for Tax, National Insurance and pension contributions (treat the payment as wages)
- The employee cannot undertake work for you when they are furloughed or generate any revenue
- For variable pay employees claim the higher of either the amount they earned in the same pay period in the previous year or the average earnings from their 2019-2020 tax year
- If the employee is required to do any work whilst they are Furloughed e.g. online learning their pay for that work must meet the NMW/NLW requirements
In order to claim the information employers will need is:
- 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
HMRC have suggested they reserve the right to retrospectively audit any aspect of the claim.
Suggested Approach
Phase 3 suggest that employers use their payroll software to remove the usual pay from the furloughed worker (bringing their gross pay to nil) and then create a payroll element and associated calculation to calculate the value of the job retention grant at £2500 or 80% of the earnings (with the earnings being the usual salary excluding overtime, bonus etc for salaried workers, and the higher of either the same pay period in the previous year or the average earnings across the 2019-2020 tax year for variable hours staff). This will then allow payroll systems to calculate the correct payment.
Should your payroll software be unable to handle these calculations a report could be created to identify the correct values and the payroll manually adjusted. Phase 3 strongly recommend that you keep records of how the values were calculated should you be subject to a retrospective audit.
In order to support a clean reconciliation Phase 3 also suggest creating a specific cost code for this payment, with Employers NI and Employers Pension costs being apportioned between the top up payment (if it is being made) and the retention payment costs all attached to this new cost code. This will allow the reconciliation to be completed against the total costs associated with the furlough.
Your software provider may offer some increased support or functionality to allow this to be executed in payroll.
Should you need support or assistance with creating these rules in payroll please do not hesitate to contact us.
Updated Guidance 4th April 2020:
On 4 April 2020, further details relating to the Coronavirus Job Retention Scheme were published by HMRC, and many of the questions that have recently been raised by payroll professionals have been addressed.
The updates have been made to both the employee guidance and the guidance for employers.
Understandably, many queries have been raised relating to which elements of pay can be reclaimed back from HMRC, and the new guidance does provide some further information. There has been clarification that an employer may reclaim 80% of regular payments that an employer is obliged to pay to their employees. This is inclusive of wages, any overtime already completed, fees and compulsory commission payments. This is a substantial change from the original guidance, which stated that commission and fees could not be included. The update confirms that discretionary bonus payments (including tips), commission and non-cash payments should not be included.
The cost of non-monetary benefits that are provided to employees, including taxable Benefits in Kind should not be included in the amount that employers claim back. Any benefits provided through salary sacrifice schemes, inclusive of pension contributions, that lower the taxable pay of an employee should not be included in the reference salary. If employers provide benefits to furloughed employees, this must be in addition to any wages paid under the scheme.
The guidance confirms that student loans and Apprenticeship Levy should continue to be paid in the normal fashion, and that the grant from the government will not cover these costs.
Salaried company directors can be furloughed and can continue to perform statutory duties only. This differs to other furloughed employees who cannot carry out any work at all for the employer who has placed them on furlough. The same rules apply to individuals who are directors of their own personal service company (PSC), as those applied to company directors.
Further confirmation has been provided in relation to the National Living Wage (NLW) / National Minimum Wage (NMW) and Apprentices Minimum Wage (AMW). As already stated, furloughed workers, as they aren’t working, are not entitled to those rates and, if 80% of their pay brings them below this rate, it does not matter. However, the increase to rates from 1 April 2020 must be observed for payment for any hours spent in training. The employer will need to pay the additional amounts not covered by the grant, to ensure NLW/ NMW /AMW are paid for any training hours. The same applies to apprentices for any time they spend training.
HMRC has agreed that COVID-19 counts as a life event and is reason enough to allow individuals to make changes to salary sacrifice arrangements, as ordinarily, employees cannot switch freely out of a salary sacrifice scheme unless there is a significant life event. The contract of employment needs to be updated accordingly.
The governments full guidance is below:
The Coronavirus Job Retention Scheme is a temporary scheme open to all UK employers for at least three months starting from 1 March 2020. We expect the scheme to be up and running by the end of April. It is designed to support employers whose operations have been severely affected by coronavirus (COVID-19).
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.
The scheme is open to all UK employers that had created and started a PAYE payroll scheme on 28 February 2020.
Who can claim
Any UK organisation with employees can apply, including:
- businesses
- charities
- recruitment agencies (agency workers paid through PAYE)
- public authorities
You must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.
Where a company is being taken under the management of an administrator, the administrator will be able to access the Job Retention Scheme.
Public sector organisations
The government expects that the scheme will not be used by many public sector organisations, as the majority of 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, we expect 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.
Employees you can claim for
Furloughed employees must have been on your PAYE payroll on 28 February 2020, and can be on any type of contract, including:
- full-time employees
- part-time employees
- employees on agency contracts
- 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.
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. While on furlough, the employee’s wage will be subject to usual income tax and other deductions.
This scheme is only for employees on agency contracts who are not working.
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 your payroll and pay their salary subject to the terms of the employment contract you agreed.
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.
Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme.
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
Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February.
If your employee is 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.
If your employee has more than one job
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.
If your employee does volunteer work or training
A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for, or on behalf of your organisation.
However, if workers are required to for example, complete online training courses whilst they are furloughed, 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.
If your employee is on Maternity Leave, contractual adoption pay, paternity pay or shared parental pay
Individuals who are on or plan to take Maternity Leave must take at least 2 weeks off work (4 weeks if they work in a factory or workshop) immediately following the birth of their baby. This is a health and safety requirement. In practice, most women start their Maternity Leave before they give birth.
If your employee is eligible for Statutory Maternity Pay (SMP) or Maternity Allowance, the normal rules apply, and they are entitled to claim up to 39 weeks of statutory pay or allowance.
Employees who qualify for SMP, will still be eligible for 90% of their average weekly earnings in the first 6 weeks, followed by 33 weeks of pay paid at 90% of their average weekly earnings or the statutory flat rate (whichever is lower). The statutory flat rate is currently £148.68 a week, rising to £151.20 a week from April 2020.
If you offer enhanced (earnings related) contractual pay to women on Maternity Leave, this is included as wage costs that you can claim through the scheme.
The same principles apply where your employee qualifies for contractual adoption, paternity or shared parental pay.
Work out what you can claim
Employers need to make a claim for wage costs through this scheme.
You 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. Fees, commission and bonuses should not be included.
At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month. An employer can also choose to top up an employee’s salary beyond this but is not obliged to under this scheme.
We will issue more guidance on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions, before the scheme becomes live.
Full time and part time employees
For full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. Fees, commission and bonuses should not be included.
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, you 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, 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.
Once you’ve worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.
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.
You can claim a grant from HMRC to cover wages for a furloughed employee, equal to the lower of 80% of an employee’s regular salary or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on paying those wages.
You 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).
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, if workers are required to for example, complete online training courses whilst they are furloughed, 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.
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 need to seek legal advice on the process. If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.
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 of 3 weeks)
- your bank account number and sort code
- your contact name
- your phone number
You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.
Claim
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 if applicable.
What to do after you’ve claimed
Once HMRC have received your claim and you are eligible for the grant, they will pay it via BACS payment to a UK bank account.
You should make your claim in accordance with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll.
You must pay the employee all the grant you receive for their gross pay, no fees can be charged from the money that is granted. You can choose to top up the employee’s salary, but you do not have to.
When the government ends the scheme
When the government ends the scheme, you must make a decision, 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
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.
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.
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