Updated 4 August
The Coronavirus Job Retention Scheme (CJRS), also known as the furlough scheme, is a temporary scheme open to all UK employers. It started from 1 March 2020, finished at the end of July 2020 in its current form and continues in a revised form until the end of October 2020.
As of Monday 20 April, employers have been able to use an online HMRC 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 (NICs) 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 or before 19 March 2020.
CJRS closed to new entrants on 30 June.
CJRS in July-October: flexible furloughing
As part of the government’s winding down of CJRS, the scheme allowed flexible part-time working from July. CJRS will pay employee costs (up to the threshold) for the time they are furloughed, while employers will pay employees for the time they are working.
This is how the Job Retention Scheme is changing over the coming months:
- In June and July, CJRS continued to pay 80% of wages up to £2,500 per month plus Employer NICs and minimum auto enrolment employer pension contributions for the hours employees don’t work.
- In August, CJRS will pay 80% of wages up to £2,500 for the hours employees don’t work. Employers will pay Employer NICs and pension contributions.
- In September, CJRS will pay 70% of wages up to £2,187.50 for the hours employees don’t work. Employers will pay 10% of wages for the hours employees don’t work plus Employer NICs and pension contributions.
- In October CJRS will pay 60% of wages up to £1,875 for the hours employees don’t work. Employers will pay 20% of wages for the hours employees don’t work plus Employer NICs and pension contributions.
- CJRS will end on 31 October.
Our CJRS claim form has been updated to reflect these changes to the scheme.
Furloughed employees must have been on your PAYE payroll on or before 19 March 2020 and notified to HMRC on an RTI submission on or before 19 March 2020. This means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 19 March 2020.
Furloughed employees 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 between 28 February 2020 and 19 March 2020, if they are rehired by their employer.
To be eligible for the subsidy, when on furlough, an employee cannot undertake work for or on behalf of the organisation. This includes providing services or generating revenue but training is permitted, as is volunteering outside work.
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. We have more information on the related HR issues here.
Employees hired after 19 March 2020 cannot be furloughed or claimed for in accordance with this scheme.
There are specific provisions dealing with employees on maternity leave, contractual adoption pay, paternity pay or shared parental pay. Let us know if you need further details.
While on furlough, the employee’s wage will be subject to usual income tax and other deductions, as explained below.
Work out what you can claim
If you’re an employer, you can 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 NICs and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included.
At a minimum, you must pay your employee the lower of 80% of their regular wage or £2,500 per month. You can also choose to top up an employee’s salary beyond this but is not obliged to under this scheme.
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, commissions 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 it has been established how much of an employee’s salary can be claimed for, the employer or its agent must then work out the amount of Employer NICs and minimum automatic enrolment employer pension contributions can also be claimed.
Office holders (including directors), salaried members of LLPs and agency workers are eligible for the scheme as long as they are properly furloughed and do not, for example, undertake any revenue generating function during their period of furlough. This also applies to salaried individuals who are directors of their own personal service company. However, they can perform statutory duties including record keeping, such as preparing VAT returns and annual accounts.
The furloughing should be ratified by formal decision of the board/LLP. HMRC may require evidence of this and we are able to assist you in that.
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.
This means that 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 for example to complete 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.
Statutory redundancy payments to furloughed employees who are made redundant are to be based on normal wage rather than on a reduced furlough rate.
What employers will need to make a claim
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 three weeks)
- Your bank account number and sort code
- Your contact name
- Your phone number
The employer must quantify the claim, subject to HMRC’s normal right to audit all aspects of the claim.
The employer can only submit one claim at least every three weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until 1 March if applicable.
CJRS closed to new entrants on 30 June. Employees on statutory maternity/paternity leave and military reservists who return to work after 10 June may still be furloughed, but only if they work for an employer who has previously furloughed employees.
From July, the number of employees an employer can claim for in a claim period, which cannot straddle month ends, cannot exceed the maximum number claimed for in an earlier claim period, so if some employees have alternated between working and being furloughed they should all be furloughed at some point in a June claim.
How July’s changes affect the claims process
If you have been making monthly CJRS claims to HMRC, it’s worth exploring the implications of ‘flexi-furloughing’:
Your practice may have been to start gathering the information for the claim at the start or middle of the month i.e. the June claim may have actually been prepared and submitted to HMRC on 16 June. Knowing that staff would have to be on furlough for a minimum of three weeks stopped this process from becoming too uncertain.
As there is more flexibility from July, with staff able to return part-time or for days they are needed, you may have less certainty about the full working pattern for the month.
Therefore, in approaching the claims process, your options are:
- Complete your CJRS claim at the end of the month, once you are aware of the employees’ worked hours. This will affect cashflow as you will need to pay out the wages before HMRC make payment to you.
- Make your CJRS claim from the 16th of the month based on the hours you expect the employee to work in the month, and then make an adjustment in the later claim.
- Make more frequent CJRS claims i.e. weekly.
We’d be happy to discuss these options with you and the changes to the claims process which the new CJRS rules will require. We recommend doing this as soon as possible.
What to do after the claim has been submitted
Once HMRC have received your claim and processed it, 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.
The end of CJRS
The employer must make a decision, depending on their circumstances, as to whether employees can return fully to their duties when the government ends the scheme. If not, it may be necessary to consider termination of employment (redundancy).
Income tax and Employee National Insurance
As mentioned above, wages of furloughed employees are subject to income tax and National Insurance as usual. Employees must also pay auto 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 NICs on wages paid, as well as auto enrolment contributions on qualifying earnings unless an employee has opted out or has ceased saving into a workplace pension scheme.
Tax treatment of the CJRS grant
Payments received by a business under the scheme must be included as income in the business’ calculation of its taxable profits for income tax and corporation tax purposes, in accordance with normal principles.
Job Retention Bonus
As announced by the Chancellor on 8 July, the government will introduce a one-off payment of £1,000 to UK employers for every employee furloughed under CJRS who remains continuously employed through to the end of January 2021.
Employees must earn above the Lower Earnings Limit (£520 per month) on average between the end of CJRS and the end of January 2021.
Payments will be made from February 2021.
How BKL can help
We can advise you on maximising your entitlement under the Coronavirus Job Retention Scheme and we can also process such claims on your behalf, so as to ensure you receive HMRC funding as soon as possible. Please get in touch with us using our enquiry form.