There are no changes to the scheme up to 31 July 2020, however, from the start of August 2020 greater flexibility will be introduced to allow furlough workers to return to work part-time, with employers being asked to pay a percentage towards the salaries of their furlough staff.
Further details of the flexibilities were announced by the government on 29 May 2020 can be found found here.
HMRC have created a dedicated portal as part of the ‘PAYE for Employers Service’. The portal went live on Monday 20 April – so claims are now able to be made .
You can apply for the grant here, logging in using your employer government gateway credentials. If you have not yet enrolled for PAYE Online, you will need to register with HMRC before you can apply.
The claim process is fairly straightforward, however, we would recommend that you have all of the relevant information to hand before you log on.
Once you have made a claim, you will get a claim reference number – you should keep a note of this. HMRC will then check that your claim is correct and pay the claim amount by BACs into your bank account within 6 working days.
After you have made a claim, you will need to keep records of supporting documents and calculations and advise your employees you have made a claim. If you have not done so already, you will need to pay the wages to your employees.
Who can claim?
The scheme is open to all UK organisations with employees, including:
• Recruitment agencies (agency workers paid through PAYE)
• Public authorities
The scheme is open to all UK employers that have a PAYE scheme at 19 March 2020, and have a UK bank account.
In addition, you must have a PAYE online account. If you have not already registered for this, we would recommend that you do this as soon as possible as these requests can take up to 10 days for HMRC to process. Please see below for further instructions on how to do this.
Employees you can claim for
You can only claim for employees that were on your PAYE payroll at 19 March 2020 and had been notified to HMRC on an RTI submission on or before this date. This includes employees on:
• Full time contracts
• Part time contracts
• Agency contracts – only those who are not working
• Flexible and zero hours contracts
Individuals that were employed at 28 February 2020 and notified to HMRC on an RTI submission prior to this date that were made redundant/stopped working prior to 19 March 2020 can be included – providing they are re-hired and placed on furlough.
Grants under the scheme are not counted as ‘access to public funds’ – and employees on all categories of visas can be included.
A furloughed employee will remain on the company’s payroll, however their status will change to that of a furlough worker. The procedure for changing for the status of an employee is a matter of employment law and careful consideration should be given to ensuring the correct procedures are followed. Guidance on the process to follow, along with a formal written furlough agreement, can be obtained from our HR team.
Employees are not able to undertake work for the organisation whilst furloughed – this means that if employees are working reduced hours, or for reduced pay, they will not be eligible for the scheme. You will need to continue paying them through payroll and pay their salary subject to the terms of their employment contract.
If your employee is on unpaid leave, they cannot be furloughed – unless the unpaid leave commenced after 28 February 2020. Employees on unpaid leave prior to 28 February 2020 cannot be furloughed until the date they return from leave.
Employees who are on sick leave or self-isolating should be entitled to Statutory Sick Pay (SSP), but can be furloughed after this.
Employees who are in the vulnerable/high-risk groups who are ‘shielding’ can be placed on furlough.
For those employees who are on, or plan to take, maternity leave and other statutory parental leave, the normal rules apply.
Company Directors/Office Holders
Office holders can be furloughed and receive support through the scheme.
The furlough needs to be agreed between the office holder and the party operating PAYE on their income. Where the office holder is a company director/member of a Limited Liability Partnership (LLP) – the furlough arrangements should be formally agreed as a decision of the company.
Salaried company directors are eligible to be furloughed and receive support through the scheme. This includes salaried individuals who are directors of their own Personal Service Company (PSC).
Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties (under Companies Act 2006) of one or more of its salaried directors, the board can agree to furlough those individuals.
Where furlough is decided by the board, this should be formally documented as a decision of the company, noted in the company records and communicated in writing to those concerned.
Where furloughed directors need to carry out statutory duties, they may do so provided they do no more than would reasonably be judged necessary. They should not carry out revenue producing work, or provide services to/on behalf of the company.
Apprentices can be furloughed in the same way as other employees and they can continue to train whilst furloughed.
However, you must continue to pay them at the appropriate minimum wage for all the time they spend training. This means you must cover the shortfall between the amount you can claim through the scheme and the appropriate wage.
Work out how much you can claim
A claim will be required through a dedicated online portal which is currently being set up by HMRC.
The maximum employers can claim is the lower of:
• 80% of the employee’s wage (including those on minimum wage) – up to the permitted maximum of £2,500 per month.
• Employer’s National Insurance on the subsidised amount.
Employer pension contributions due on the subsidised amount can be claimed, up to the minimum level of auto-enrolment employer contribution (currently 3% on qualifying earnings).
For full and part time employees (on a salary), the amount to be used in the calculation is the gross salary (before tax) in the last pay period prior to 19 March 2020.
If the calculation has been based on the previous guidance (28 February 2020) and this differs from their salary in the last period prior to 19 March 2020, you can choose to use the original calculation for your first claim.
For employees whose pay varies, a claim can be made for the higher of:
• The same months earnings for the previous tax year
• Average monthly earnings from the 2019/20 tax year
For employees that have been employed less than a year, you can calculate using their average monthly wage since they started work to the date they were placed on furlough.
For employees who have worked less than a month – you can pro-rata their earnings so far to claim.
Once you have calculated how much of an employee’s salary you can claim, you will need to calculate the Employers National Insurance Contributions and minimum auto-enrolment employer pension contributions on this.
Past Overtime, Fees, Commission, Bonuses and Non-Cash Payments
You can claim for any regular amounts you are obliged to pay – such as salaries, past overtime, fees and compulsory commission payments. However, discretionary and commission payments (including tips), and non-cash payments should be excluded.
Benefits in Kind
Non-monetary benefits should not be included, including taxable benefits in kind.
Salary Sacrifice Schemes
Benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should not be included. Where benefits are provided to furloughed employees, this should be in addition to the wages that must be paid under the scheme.
Generally, an employee cannot switch freely out of a salary sacrifice scheme unless there is a life event. HMRC have agreed that COVID-19 is a life event that could warrant changes to a salary sacrifice scheme. If changes are to made, care will need to be taken to ensure that the relevant employment contracts are updated accordingly.
Apprenticeship Levy/Student Loans
Grants under the Job Retention Scheme do not cover student loan and apprenticeship levy – these amounts should be paid as normal.
Employer NIC/Pension Contributions
Employers will continue to be responsible for Employer’s National Insurance Contributions and employer pension contributions on behalf of their furloughed employees.
The grant will cover 80% of the worker’s wages and associated costs.
Employers can choose to top-up salary in addition to the grant, However, any additional associated costs due will not be covered by the scheme.
HMRC have produced a step-by-step guide that can be used to calculate Employers National Insurance contributions and pension contributions – which can be found here.
National Living Wage (NLW) / National Minimum Wage (NMW)
Employees are only entitled to the living/minimum wage when they are working.
Furloughed workers, who are not working, must be paid the lower of 80% of their earnings, or £2,500, even if this would be below minimum wage.
However, if the employees are required to complete any training whilst furloughed, they will be entitled to receive at least the NLW/NMW for the time spent training, irrespective of whether this is more than the 80% which will be subsidised.
The minimum wage increased on 1 April 2020 – this will need to be taken into account when calculating amounts for employees who continue to undertake training.
What you will need to make a claim
Employers should discuss with their staff and make any necessary changes to their employment contracts. Our HR team can advise you in this area.
In order to make the claim, you will need to provide certain details to HMRC, including:
• Your PAYE reference number
• The number of employees being furloughed
• Names and National Insurance numbers of furloughed employees. You may also provide the payroll/employee numbers for those employees – however this is optional.
• Your Corporation tax Unique Taxpayer Reference (UTR), or company number (if you are a company) or your Self Assessment UTR if you are an individual.
• The claim period (start and end date)
• The amount claimed (per minimum length of furlough of 3 weeks)
• Your bank account number and sort code
• Your contact name
• Your phone number
You can only submit one claim every 3 weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated to 1 March if required.
If you have less than 100 furloughed employees, you will be asked to enter their details individually directly on to the system. If you have more than 100, you will be asked to upload a file with the information. The following file types will be accepted:
The file should include the relevant information for each employee (listed above).
You will need to calculate the amount you can claim. HMRC will retain the right to audit claims where necessary. We recommend that you maintain full records of the calculations and claims.
HMRC are unable to provide details to your employees regarding the amounts you claim on their behalf. HMRC have requested that you keep your employees updated, and ask them not to contact HMRC.
Once HMRC have received your claim and confirmed your eligibility, they will pay reimbursements via BACS to a UK bank account.
Claims should be made in accordance with actual payroll amounts at around the time the payroll is run.
You must pay the employee the full amount you receive for their gross pay. Employers can choose to top-up salary in addition to the grant, however any additional associated costs due will not be covered by the scheme.
PAYE Online Government Gateway account
As noted above, it is strongly recommended that you set up an online government gateway account with the ‘PAYE for Employers’ service attached – as this can take 10 days to set up, we would recommend starting the process as soon as possible.
To set up a Government gateway account for ‘PAYE for Employers’ services, if you do not have one already, please use this link.
You may already have a business tax account (which, for example, shows the VAT position/corporation tax payments), in which case you should be able to add PAYE via the ‘add a service’ to this existing login by selecting ‘PAYE for Employers’. You will need the PAYE reference number and Accounts office reference (this will likely be shown on letters you have received from HMRC regarding PAYE).
Once you’ve set up the account and added ‘PAYE for employers’ service, a code will be sent to you by HMRC.
When the government ends the scheme
You must consider whether the employees are able to return to their duties. If not, then depending on your circumstances, you may need to consider redundancy.
HMRC will continue to pay outstanding claims before the scheme is closed.
Furloughed employees have the same rights as before the furlough began – including entitlement to Statutory Sick Pay, maternity and other parental rights and redundancy.
The grants cannot be used to subsidise redundancy payments – HMRC will continue to monitor businesses after the scheme has closed.
Employees working for a different employer
If their employment contract allows, employees can work for another employer whilst on furlough.
If you take on new employees, the starter declaration should be filled out correctly. If the employee is furloughed from another employment, they should complete Statement C.
Income Tax and National Insurance - Employees
The amounts paid to furloughed workers will be subject to Income Tax and National Insurance in the normal way. Employees will also be required to pay automatic enrolment pension contributions, unless they have opted-out.
Employers will be required to pay Employer National Insurance on wages paid, as well as auto-enrolment pension contributions (if applicable).
Tax treatment - Businesses
Payments received under the scheme are made to offset the costs of wages and associated costs, which are generally tax deductible.
They must therefore be included as income in the business’ calculation of its taxable profits for Income Tax and Corporation Tax purposes, in line with normal principles.
The employment costs will be deductible as normal, which should make the effect tax neutral.
If you are an individual employing someone who is not part of a business (i.e. domestic staff) – the grant is not taxable. However, the employee will be subject to income tax and national insurance deductions in the usual way.
If you would like to know more about the Coronavirus Job Retention Scheme, or any of the other Coronavirus support schemes for businesses, please do contact us.