Coronavirus Job Retention Scheme

Collier-Marsh Accountancy

Chartered Accountants


As was announced last week by the Chancellor, the government is supporting businesses through the job retention scheme. The government have been ironing out how this will work and have released more detail of how this will work today.

 

The Coronavirus Job Retention Scheme is a temporary scheme open to all UK employers for 4 months starting from 1 March 2020 and now running until 30th June 2020.  It is designed to support employers whose operations have been severely affected by coronavirus (COVID-19).

 

The scheme should be up and running by the end of April.

 

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.

 

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.


Employees you can claim for

 

Furloughed employees must have been on your PAYE payroll on 28 February 2020 (updated guidance: includes employees included on an RTI submission on or before 19th March 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 will also cover directors - see further guidance below.

 

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. Please see attached a template of the communication for employees.

 

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.

 

Further 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, will be issued in due course.

 

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.


CJRS and Company directors


Many sole directors will take some remuneration through PAYE by way of salary, usually at a tax efficient level. Therefore, directors will be eligible to make use of the Coronavirus Job Retention Scheme based on their PAYE salary, although dividends are not included as part of the amount that can be claimed.

 

One of the key requirements is that any directors included must stop working completely in the business to be eligible for the scheme. However, it is understood that statutory duties can be carried out but no services or revenue-generating work.

 

Frequently Asked Questions

 

Q: What can I claim?

 

A: You can claim a grant of up to 80% of your ‘regular wage’ or £2,500 (whichever is lower). This claim can be backdated to 1 March 2020, but would only be available from the date the director is actually furloughed. The scheme will last for at least three months. 

 

Q: By when does my PAYE scheme need to be in place?

 

A: The employers’ PAYE scheme must have been created and started by 28 February 2020 and you must also have a bank account in the UK. You must be on the payroll as at this date.

 

Q: Can I claim if I work part-time in the business?

 

A: Yes, full-time and part-time directors on the payroll can claim.

 

Q: What if I just reduce my hours or pay?

 

A: If the director is still working, even for reduced hours or pay, they will not be able to claim via this scheme.

 

Q: How do I calculate my ‘regular wage’?

 

A: Your regular wage is the higher of the same month’s earnings from the previous year or the average monthly earnings from the 2019-20 tax year.

 

Q: How do I claim?

 

A: As a minimum we suggest that the company writes a letter advising the director that they have been ‘furloughed’ and a copy of this should be kept on the file to support any claim. 

 
Wages must continue to be paid (along with tax and NI, if appropriate) to directors to make the claim for the grant at a minimum of 80% of their regular wage or £2,500 per month.

 

Links to websites for further support:


https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme


https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme


https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme

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