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Coronavirus Job Retention Scheme: a cash grant that is designed to allow employers to retain staff who would otherwise be laid off.

At a glance

At a glance

 How to claim

Update 29 May 2020

The scheme now extends until the end of October 2020 and under taper provisions, furloughed employees will be able to work part-time and employers will begin to contribute to Employers National Insurance (ERs NICs).

 Detail

March to 30 June 2020

1 July

1 August

September

October

Furlough wages: government contribution

Government pays 80% of furloughed workers’ wages up to a cap of £2,500

 

Government pays 80% of workers’ furlough wages up to a cap of £2,500

 

Government pays 80% of workers’ furlough wages up to a cap of £2,500

Government pays 70% of workers’ furlough wages up to a cap of £2,187.50.

Government pays 60% of workers’ furlough wages up to a cap of £1,875. Employers will pay ERs NICs and pension contributions and 20% of wages to make up 80% total up to a cap of £2,500.

Can furloughed worker work for the employer No Yes Yes    

Furlough wages: employer contribution

     

Employer pays 10% of wages (to make up to 80%)

Employer pays 20% of wages (to make up to 80%)

ERs NICS & pensions

Government pays

 

Employer pays

   

Other key changes

 The scheme will close to new entrants on 30 June 2020

Part-time work possible whilst furloughed: the employer pays  wages for actual hours worked. 

     

Minimum claim period

3 weeks

1 week

     

Key points from 1 July

Scheme closure to new entrants

What are 'usual' hours?

UPDATE 27 August 2020 HMRC compliance activity on CJRS

HMRC have started the next phase of compliance activity on the CJRS. It has written to around 3,000 employers it believes may have been overpaid in cases where:

A penalty and tax liability could arise if any overpayment is not repaid in time and there is a failure to notify HMRC about it.

UPDATE 1 July 2020 HMRC powers to deal with overpayments and misuse of CJRS payments

Finance Actl 2020 schedule 16 gives HMRC the power to:

The  legislation also sets out that the circumstances in which a person is not entitled to a coronavirus support payment include, where they cease to be entitled to it after they have received it because of a change of circumstances and or because it was not used for the purposes for which it was paid.

UPDATE 30 June 2020: How to deal with over/under claims

Overclaims can now be corrected by adjusting a later claim. If you think you have claimed too much you must notify HMRC by the later of:

If you do not notify HMRC within these time limits you may be liable to a penalty of up to 100% of the amount of the CJRS grant that you were not entitled to receive or keep, and had not repaid by the notification deadline.

If you have overclaimed and do not plan to make any later claims you must make a payment to HMRC.

See Pay Coronavirus Job Retention Scheme grants back.

For underclaims you must contact HMRC on 0800 024 1222: they will request additional information as you are increasing your claim. Additional claims for periods to 30 June 2020 must be made by 31 July 2020.

If you have made an error on a claim you can delete it within 72 hours and start again. ADDED 9/7

UPDATE 18 June 2020: PAYE and NIC payments

We understand that it is a condition of the scheme that, having paid furloughed staff, employers must pay all PAYE and NIC over to HMRC or their claims may be refused. This condition is not immediately clear when making a claim under the scheme so, if HMRC are refusing furlough claims due to unpaid PAYE and NIC, businesses should contact HMRC to discuss their position and see if HMRC will agree to retaining the overdue PAYE/NIC from future CJRS payments to help them get up to date, and allow them to continue receiving support under CJRS. This does not apply to general employer tax arrears, only to overdue PAYE and NIC in respect of payments to furloughed employees.

UPDATE 27 May 2020: Record Keeping and TUPE, see headings below.

UPDATE 12 May 2020: Extension of scheme and proposed relaxation of rules

UPDATE 5 May 2020: Incorrect refusal of Job Retention Scheme financial support

Overview and examples

What does the government mean by furloughing 

Who can be furloughed?

Can your employee work for you when furloughed?

Rules from 1 July 2020:

Rules to 30 June 2020:

HMRC's guidance is slightly muddled in terms of what kind of entity can be linked or associated. 

We assume that the latter applies, as not all employers are companies and so it is odd to limit the rule to just companies. We have requested clarification from HMRC. 

How does it work and how much can be claimed?

1. Tapered changes from 1 September 2020

The maximum grant that can be claimed will be:

Employers pay the balance to take furlough pay up to 80% of normal pay and pay all ERs NICs and pension costs.

HMRC have provided an example of how to calculate the minimum furlough pay from 1 September 2020:

R Ltd calculates how much it can claim for its employee’s furlough pay:

  1. Start with £1,500 - this is the minimum furlough pay
  2. Divide by 80
  3. Multiply by 70 - because the claim period is in September.

R Ltd can claim a grant of £1,312.50 towards its employee’s wages. R Ltd must pay the employee the minimum furlough pay amount of £1,500, and can choose to pay more than this but does not have to.

If the claim period here was October 2020, step 3 above would require you to multiply by 60. 

2. From 1 August 2020

3. From 1 July 2020

HMRC have provided the following example of how to calculate minimum furlough pay for an employee who is flexibly furloughed and is working part-time from 1 July.

Q Ltd calculates the minimum furlough pay:

Q Ltd must also work out how much they can claim for ER's NIC and pension costs based on the hours worked.

4. Rules 1 March to 30 June 2020

What are wages?

Wages are your monthly earnings:

If your employee's salary varies:

Update: 4/4/2020

What about overtime?

It is paid. We queried this on 3 April 2020 and HMRC have been quick to update their guidance.

Practically speaking, this means that the amount paid is based on your contractual earnings as paid in February 2020, or if the calculation is based on variable pay, the mechanism will be the average of contractual earnings for 2019/20 paid up to 28 February 2020. It will not include discretionary amounts paid.

What about the National Minimum Wage (NMW)?

The NMW increased on 6 April 2020.

Apprentices must be paid at least the Apprenticeship Minimum Wage/National Living Wage (NLW)/NMW. The employer must top-up any shortfall between the amount it can claim for an apprentice's wages through the furlough scheme and their appropriate minimum wage.

Other employees are subject to different rules: prior to 1 July no one is working during the time that they are furloughed. If they are paid 80% of their usual pay, this may well take them below the NLW/NMW and that is accepted. If they are undertaking training in that period, they must be paid the NLW/NMW for the training period and the employer must top-up any shortfall.

What about holiday pay and bank holidays?

Your employees can still take a holiday while they are furloughed. Under the Working Time Regulations (WTR), holiday pay must be paid at the employee’s normal rate of pay or, if this varies, it must be based on the average pay the employee has received in the previous 52 working weeks. This means that if a furloughed employee takes holiday, the employer will have to pay additional amounts over the grant in order to meet the requirements of the WTR.

Where an employee usually works bank holidays the employer can agree this is included in the grant payment. If the employee usually takes the bank holiday as leave, the employer will either have to top up their holiday pay or give them a day of holiday in lieu. Since April and May include four bank holidays employers will need to consider how they are going to deal with this.

What about directors and annual salaries? 

HMRC have now included this in their guidance. Directors and any other employees paid annually are eligible to claim, provided they meet the qualifying conditions, which include:

Directors who are paid annually just in March/start of April will not be eligible:

Conversely, a director who was paid an annual salary in say February 2020, would be eligible for the grant as they would have been notified to HMRC on an RTI submission on or before 19 March 2020 for a payment of earnings in the 2019/20 tax year.

The HMRC online claims calculator should not be used for directors and those who are paid annually. Manual calculations must be performed instead.

Transfer of Undertakings (Protection of Employment) Regulations (TUPE)

How to claim

What to pay?

As an employer you may need to renegotiate the employee's contract. The need to do this may well reflect your financial circumstances.

You must pay the employee all the grant received for their gross pay, no fees can be deducted from the grant money.

The employees you furlough must not work for you during the first furlough period, March to June 2020. From 1 July they may work part-time.

Throughout the furlough period, the employee remains your employee.

Do not forget about employment law. This is for your protection as an employer (against claims by employees once this is all over) as well as the protection of your employees.

*We are unable to give employment law advice but have included some suggestions below which should help manage your risk here. If in doubt you must seek independent legal advice.

What period is covered by the job retention grant claim?

These examples illustrate how we think the grant will work for many businesses: 

Example 1: Corona Travel Ltd is a specialist tour operator sending UK tourists to remote parts of China. When Wuhan Province announces a lockdown in February 2020, the company decides to cancels all its spring and early summer tours. All staff are laid off at the end of February except the director. When the UK announces its employee job retention scheme in late March 2020, the company contacts staff and advises them that they will be re-employed and furloughed. As the staff were all laid off before 1 March the company's furloughing claim in respect of the furloughed staff can be backdated to 1 March as none of these employees worked in March. 

Example 2: Corona Gelatos Ltd employs 15 employees, 12 who work in sales and the production line and delivery. The UK went into COVID-19 lockdown on 23 March and all the company's retail customers shut down their gelato parlours. The company decides to cease all production and lay off and furlough all sales, production and delivery staff from 24 March. Staff are paid their normal salary up to 23 March and the furloughed staff are paid their salary as negotiated with the company for the period they are furloughed from 24 March onward.

What is required to make a claim

The online portal for making claims became available on 20 April.

Payment will be made within six working days after the claim. HMRC say you should only contact them about your claim if you have not received payment within 10 working days.

To make a claim you will need the following information:

No claims can be made using the online portal for any furloughed employees without NI numbers. Where an employer has furloughed employees without NI numbers:

Where the employer does not have a UTR or CRN they should answer ‘No’ to the questions:

They will then be asked ‘What is the name of the employer?’ and the claim can proceed.

You must calculate the amount to claim, HMRC will not do it for you. HMRC have provided an online calculator but this cannot be used in some circumstances including for directors and those who are paid annually. You should keep a full record of your calculations.

Record keeping

HMRC have said that they will retain the right to retrospectively audit all aspects of your claims and payments may be withheld or have to be fully repaid if HMRC find that they are based on dishonest or inaccurate information or if they are fraudulent. 

A Treasury Direction issued on 22 May 2020 makes it clear that the written agreement for the employee to cease all work has to be retained by the employer until at least 30 June 2025 and must:

Where an employer is flexibly furloughing staff from 1 July they must also keep records of the hours worked by those employees and what their usual hours would have been for each claim period, for up to 6 years.

Tax Treatment of the Job Retention Grant

VAT implications Added 19/5

HMRC have not provided any guidance as to whether the grants under the CJRS will be subject to VAT or count towards turnover for VAT registration limits. Normal principles are expected to apply meaning:

Steps to take when furloughing workers

HMRC have said that payment should be made within 6 working days.

Directors of small companies

COVID-19: Company Directors & Shareholders: many small companies are run by just one or two directors and have no other employees.

What government financial support is available to director/shareholders during the Coronavirus crisis?

The government has confirmed our views on this:

See COVID-19: Company Directors & Shareholders

Furlough v Redundancy?

What is the best course of action for an employer in dealing with staffing during the COVID-19 emergency?

If you want to retain your staff but cannot afford to pay them you can:

Furloughing as an option

Do you wish to retain your employee?

Yes

Is your business, due to the effects of COVID-19:

In other words, is it impossible for the employee to work for you at present or there is no other paid work currently available for them to do?

Yes

Are they employed by you under an employment contract i.e. a written or verbal contract?

Yes

Are they paid a regular wage in return for working regular hours?

Yes

You can furlough them, by keeping them on the payroll.

Casual workers

Is your worker casual or subject to a zero-hours contract?

Yes

Does your business have any ongoing obligation to offer them work?

No

Does the worker only work when they want to?

Yes, or generally they accept work when its offered.

You do not need to furlough them as you already have no obligation to provide work. You may want to use the furloughing process as a way of ensuring their future their loyalty. *

*More information is awaited from the government as it is unclear what rights casual workers have in this instance.

Redundancy

Employees

Short-term and temporary lay-offs

You can claim statutory redundancy pay if you’re eligible and you’ve been temporarily laid off (without pay or less than half a week’s pay) for either:

Write to your employer telling them you intend to claim statutory redundancy pay. This must be done within four weeks of your last non-working day in the four or six week period.

See HMRC Redundancy Pay Your Rights

Casual workers 

Workers are not normally entitled to:

See HMRC Employment Status Guidance for Workers 

 

Letter to employee for use to 30 June 2020

This template is for use with employees furloughed before 30 June 2020. From 1 July new letters will be required if you are introducing flexible furlough arrangements such as part-time working and to reflect the new minimum furlough period of one week and changes in the caps from September 2020. 

Instructions: you can use this as a template, cut and paste the text on to your own letterhead. There are Notes for completion below.

Letter start:

[Employer name if not on headed paper]

[Employer address]

[Date]

Dear [Employee name]

Due to the ongoing COVID-19 (Coronavirus) pandemic, we have identified you as a suitable employee [to be furloughed/agreed with you that you will be furloughed]* under the government's Coronavirus Job Retention scheme.

What this means is that you will not be required to work until further notice but will continue to be paid [as normal/and will receive 80% of your normal pay/you will receive pay of £2,500** per month.]*

Income tax and national insurance will be deducted from your pay as normal.

You will continue to be our employee during the furloughed period, however, you must not undertake any work for us during this period.

Your furlough period starts on [insert start date – this cannot be before 1 March 2020]. It will end on the earlier of:

We expect the period not to exceed four months. This may be extended if government restrictions mean that it is not possible for you to return to work. The government has set the minimum furlough period at three weeks.

[As already discussed we agree that you may other undertake paid temporary work/and unpaid voluntary work during your furloughed period]*

We will contact you when you are required to return to work.

[Please sign the attached form to confirm your agreement to being a furloughed employee and return to [name of appropriate person/address or email address] by [date]***.

Yours sincerely

[your name]

Letter end

 

Notes for completion - DELETE BEFORE SENDING

*Delete as appropriate.

 **Only use the £2,500 per month option where employee earnings are such that 80% of their normal gross pay is more than £2,500 per month. For example, someone earning £3,500 per month would be due £2,800 at 80% but this is reduced by the cap to £2,500.

You will not need your employee’s agreement to the furlough if:

  • They will continue to receive their full pay.
  • Their contract allows you to reduce their pay if there is no work for them.

***It is recommended that you set a deadline for responses.

 

Letter to employee for use from 1 July 2020

[Employer name if not on headed paper]

[Employer address]

[Date]

Dear [Employee name]

Due to the ongoing COVID-19 (Coronavirus) pandemic you have already been furloughed under the Coronavirus Job Retention scheme for a period of not less than 3 weeks prior to 30 June 2020.

We have identified you as a suitable employee to remain furloughed.

You will continue to be paid [as normal/and will receive 80% of your normal pay/ you will receive pay of £2,500/£2,187.50 and £1,875 per month]***

Income tax and national insurance will be deducted from your pay as normal.

You will continue to be our employee during the furloughed period.

Your furlough period starts on [insert start date – this cannot be before 1 July 2020]. It will end on the earlier of:

We expect the period not to exceed four months. This may be extended if government restrictions mean that it is not possible for you to return to work. The government has set the minimum furlough period at one week.

[During your furlough period you will be required to work [insert number of hours]** per week/month]*. OR [The number of hours that you will be required to work during your furlough period will be agreed with you in writing at the start of each week/month]*

[As already discussed we agree that you may other undertake paid temporary work/and unpaid voluntary work during your furloughed period]*

We will contact you when you are required to return to work.

[Please sign the attached form to confirm your agreement to being a furloughed employee and return to [name of appropriate person/address or email address] by [date]****.

Yours sincerely

Notes for completion - DELETE BEFORE SENDING

*Delete as appropriate.

** Insert the number of hours you require the employee to work per week or month. If this will change you should agree this with the employee and issue them with a new letter accordingly.

 ***Only use the £2,500 per month option where employee earnings are such that 80% of their normal gross pay is more than £2,500 per month and for claim periods from 1 July to 31 August. This is reduced to £2,187.50 for the month of September and £1,875 for October.

You will not need your employee’s agreement to the furlough if:

·         They will continue to receive their full pay.

·         Their contract allows you to reduce their pay if there is no work for them.

****It is recommended that you set a deadline for responses.


 

Employee response form

A form for a furloughed employee to return to the employer

 

I [Employee name and works/employee number (if they have one)] consent to being a furloughed employee until such time as I am asked to return to work.

I understand that I remain an employee of [insert name of employer] and must continue to adhere to the terms of my employment other than by prior agreement with my employer.

……………………………………………

PRINT NAME

…………………………………………….

SIGN HERE

………………………………………………

DATE

'Usual hours'

How do you calculate 'usual hours' for flexible furlough calculations? 

From 1 July, the JRS changes to allow flexible furloughing.

You claim the JRS grant for hours not worked. If your employee is going back to work part-time you will need to work out their usual hours of employment and then record the actual hours they work as well as their furloughed hours for each claim period.

You can calculate the usual hours for the entire claim period or for each pay period, or part of a pay period, that falls within that claim period. 

There are two different calculations you can use to work out your employee’s usual hours, depending on whether they work fixed or variable hours.

Fixed hours calculations

This is to work out an employee’s usual hours when they are contracted for a fixed number of hours and their pay does not vary according to the number of hours they work.

To calculate the number of usual hours for each pay period (or partial pay period):

  1. Start with the hours your employee was contracted for at the end of the last pay period ending on or before 19 March 2020.
  2. Divide by the number of calendar days in the repeating working pattern, including non-working days.
  3. Multiply by the number of calendar days in the pay period (or partial pay period) you are claiming for.
  4. Round up or down if the result isn’t a whole number.

If an employee with fixed hours was on annual leave, off work sick or on family related statutory leave at any time during the last pay period ending on or before 19 March, the usual hours should be calculated as if the employee had not taken that leave.

See HMRC's examples of how to work out usual hours for employees who are contracted for a fixed number of hours.

Variable hours calculations

Where the pay varies by the amount of time worked, you must show the number of hours worked on your employees’ payslips in line with legislation introduced by BEIS in April 2019 (Employment Rights Act 1996, section 8). 

Employers should identify the hours the employee worked using pay records, time sheets and other records which show time worked or if the pay rate is not variable, work back from gross pay.

The ‘usual hours’ for an employee who works variable hours will be calculated based on the higher of either:

If your employee has variable pay you will complete a similar comparison to calculate their usual wages but the result may be different.

When you calculate the usual hours, you should include:

If you are calculating the usual hours for an employee who is part of a flexible work time arrangement (“flexi-leave”), you should:

To work out the usual hours for each pay period (or partial pay period) based on the average number of hours worked in the tax year 2019 to 2020:

  1. Start with the number of hours actually worked (or on paid annual leave or flexi-leave) in the tax year 2019 to 2020 before the employee was furloughed, or the end of the tax year if earlier.
  2. Divide by the number of calendar days the employee was employed by you in the tax year 2019 to 2020, up until the day before they were furloughed, or the end of the tax year if earlier.
  3. Multiply by the number of calendar days in the pay period (or partial pay period) you are claiming for.
  4. Round up or down if the result isn’t a whole number.

When you calculate the number of calendar days in step 2, you should not count any calendar days where the employee was on a period of:

HMRC's examples of how to work out the average number of hours worked in the tax year 2019 to 2020 for an employee who works variable hours.

To work out the usual hours for a pay period or partial pay period based on the corresponding calendar period in the tax year 2019 to 2020:

  1. Identify the pay periods in the 2019 to 2020 tax year that correspond to at least one calendar day in the pay period (or partial pay period) you are claiming for.
  2. If the pay period (or partial pay period) you are claiming for starts and ends on the same calendar days as the identified pay period in the tax year 2019 to 2020 - use the number of hours they actually worked in that pay period.
  3. If the pay period (or partial pay period) you are claiming for does not start and end on the same calendar days as the identified pay periods in the tax year 2019 to 2020 – you’ll need to add together a proportion of the hours worked in each of the pay periods you’ve identified.

HMRC examples of how to work out the usual hours worked in the same period last year for an employee who works variable hours and the pay period (or partial pay period) being claimed for starts and ends on the same calendar days as the identified pay period.

If you have to work out the usual hours based on the hours worked in more than one pay period in the tax year 2019 to 2020:

  1. Start with the number of hours worked in the first pay period identified in the tax year 2019 to 2020.
  2. Multiply by the number of calendar days in that pay period which correspond to at least one calendar day in the pay period (or partial pay period) you are claiming for.
  3. Divide by the total number of calendar days in the pay period in the tax year 2019 to 2020.
  4. Repeat steps 1, 2 and 3 for each subsequent identified pay period in the tax year 2019 to 2020.
  5. Add them all together.
  6. Round up or down if the result is not a whole number.

HMRC's example of how to work out the usual hours based on the hours worked in more than one pay period in the tax year 2019 to 2020.

Work out your employee’s usual hours if they are paid per task or piece of work done

You should work out the usual hours for these employees in the same way as for other employees who work variable hours, if possible.

If you do not know what hours the employee worked, you can estimate the hours based on the number of ‘pieces’ they produced and the average rate of work per hour (which you should already have worked out to comply with National Minimum Wage rules).

Calculating the number of working and furloughed hours for each employee

You will have agreed how many hours your flexibly furloughed employee is going to work in the claim period. They will be furloughed for the rest of their usual hours.

To calculate the number of furloughed hours:

  1. Start with your employee’s usual hours.
  2. Subtract the number of hours they actually worked in the claim period – even if this is different to what you agreed.

If you claim in advance and your employee works for more hours than you agreed, then you’ll have to pay some of the grant back to HMRC. This means that you should not claim until you have certainty about the number of hours your employees are working during the claim period. If you make an error in your claim, you can find out how to correct it.

You must pay the employee their contractually agreed rate for any hours they work. 

HMRC example for calculating the number of furloughed hours where an employee does not take leave during the claim period.

If your employee takes leave while they are flexibly furloughed

You cannot claim for an employee under the scheme for any time they are on unpaid leave or statutory sick pay related leave.

You can claim for an employee who is on:

Any time they are on these types of leave while flexibly furloughed counts as furloughed hours and does not count as time actually worked.

Warning/examples

The Tax Faculty of the Institute of Chartered Accountants in England & Wales (ICAEW) advises employers:

"Do not simply rely on your calendar when making claims under the second iteration of the Coronavirus Job Retention Scheme from 1 July."

Usual hours are not calculated in the way that you think. Do not simply use your calendar, use your payroll records.

Under the JRS, when an employee is going back to work and is still partly furloughed the furlough claim requires:

ICAEW illustration

Bob works 35 hours a week and is paid on the last working day of each month. What are Bob's usual working hours in July 2020?

Answer 1 (this is incorrect): Looking at a calendar you arrive at 161 hours for July (23 working days Monday to Friday days x 7 hours). 

Answer 2: Looking at HMRC's published guidance, the instruction for working out an employee’s usual hours for an employee who is contracted for a fixed number of hours and whose pay does not vary according to the number of hours they work, is as follows:

“You need to calculate the usual hours for each pay period, or part of a pay period, that falls within the claim period.

“To calculate the number of usual hours for each pay period (or partial pay period):

INSTRUCTION APPLIED TO BOB
 1. Start with the hours your employee was contracted for at the end of the last pay period ending on or before 19 March 2020. 35
 2. Divide by the number of calendar days in the repeating working pattern, including non-working days. 35/7=5
 3. Multiply by the number of calendar days in the pay period (or partial pay period) you are claiming for. 5x31=155
 4. Round up to the next whole number if the outcome isn’t a whole number. 155

This gives 155 usual hours in July for Bob.

Answer 3 (this is incorrect): HMRC’s guidance to software providers on 5 June is different to the above. This guideance is expected to be withdrawn. This guidance says the usual working hours are based on an average taken over a full calendar year. To make a claim for the calendar month of July for a monthly paid individual the calculation becomes: 35 hours x 52 weeks / 12 months = 151.67 per month.

The correct answer is Answer 2. HMRC confirmed this with the ICAEW Tax Faculty on 30 June 2020.

 

Useful links

Government's Guidance: Coronavirus Job Retention Scheme

HMRC's Coronavirus Job Retention Scheme Step by step guide.

HMRC's Check if your employer can use the Coronavirus Job Retention Scheme

HMRC guidance: Reporting payments in PAYE Real Time Information from the Coronavirus Job Retention Scheme

HMRC's PAYE Portal

Pay Coronavirus Job Retention Scheme grants back

Penalties for not telling HMRC about Coronavirus Job Retention Scheme grant overpayments - CC/FS48

HMRC: Service Availability and Issues

HMRC webchat

House of Commons briefing paper: FAQs: Coronavirus Job Retention Scheme 

Updates

12/05 On extension to scheme and proposed relaxation on 'no working requirement.'

05/05 FAQ on annual payroll, links to HMRC's claims portal in How to Claim, HMRC note on incorrect refusal of claims.