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An important update to the Coronavirus Job Retention Scheme

1 June 2020
Gavin Hooker
COVID-19, Accounting & Compliance, Payroll, People, Raising Finance

On 29 May 2020, the Chancellor announced some changes to the Coronavirus Job Retention Scheme that will likely impact a lot of businesses and their furlough claims. HMRC published detailed guidance on CJRS V2 on 12 June 2020, this updated guidance can be found here.

What were the changes?

From 1 July, employees can bring back to work employees that have been previously furloughed for any amount of time and any shift pattern, whilst still being able to claim CJRS grant for their normal hours not worked. When claiming the CJRS grant for furloughed hours, employers will need to report and claim for a minimum period of a week.

The original (CJRS V1) scheme will close to new entrants from 30 June. From this point onwards, employers will only be able to furlough employees that they have furloughed for a full 3 week period prior to 30 June and make a claim under CJRS V2. The only exception to this is that if you have an employee that is returning from parental leave, they can be added to the furlough and not have to have been furloughed previously, although you can only claim for them if you have previously submitted a claim for another employee.

The final date by which an employer can furlough an employee for the first time was 10 June, in order for the current 3 week furlough period to be completed by 30 June!

Employers will have until 31 July to make any claims in respect of the period to 30 June.

From August 2020, the level of government grant provided through the job retention scheme will be slowly tapered to reflect that people will be returning to work. That means that for June and July the government will continue to pay 80% of people’s salaries. In the following months, businesses will be asked to contribute a modest share, but crucially individuals will continue to receive that 80% of salary covering the time they are unable to work.

A timeline of the changes and how the scheme will work

  • June and July: The government will pay 80% of wages up to a cap of £2,500 as well as Employer National Insurance and pension contributions. Employers are not required to pay anything.
  • August: The government will pay 80% of wages up to a cap of £2,500. Employers will pay Employer National Insurance and pension contributions. For the average claim, this represents 5% of the gross employment costs over the whole furlough period that the employer would otherwise have incurred had the employee not been furloughed.
  • September: The government will pay 70% of wages up to a cap of £2,187.50. Employers will pay Employer National Insurance and pension contributions and 10% of wages to make up 80% total up to a cap of £2,500. For the average claim, this represents 14% of the gross employment costs over the whole furlough period that the employer would otherwise have incurred had the employee not been furloughed.
  • October: The government will pay 60% of wages up to a cap of £1,875. Employers will pay Employer National Insurance and pension contributions and 20% of wages to make up 80% total up to a cap of £2,500. For the average claim, this represents 23% of the gross employment costs over the whole furlough period that the employer would otherwise have incurred had the employee not been furloughed.

From 1 July, claim periods will no longer be able to overlap months, employers who previously submitted claims with periods that overlapped calendar months will no longer be able to do this going forward. This is necessary to reflect the forthcoming changes to the scheme.

There will be a new maximum limit to the number of staff who can be included on a claim. This will be based on the maximum staff ever included in a single claim under CJRS V1. For example, if you had two teams of 4 staff that were being rotated on furlough since April (8 staff in total were furloughed), the maximum number of employees you could include on a claim from 1 July 2020 was 4 – therefore you cannot claim for all 8 employees in the same period!

Does this affect how much salary I can claim for each furloughed employee?

Where you have employees that are fully furloughed for a period, then there will be no change to what you can claim in terms of salary.

However, if you have employees that are flexibly furloughed from July, the amount of salary you can claim will depend on the hours that the employee was furloughed for.

You will need to calculate your employee’s “usual hours” and this can differ between fixed and variable paid staff! It is from this “usual hours” figure that you will deduct for the actual hours your employee has worked and then claim for the difference, being the furloughed period.

For fixed pay staff, you will need to look back at what hours your employee was contracted for at the end of the last pay period ending on or before 19 March 2020. Then divide this by the number of calendar days in the repeating working pattern, including non-working days, i.e. a weekly working pattern and pay period = 7 days. Then multiply by the number of calendar days in the pay period you are claiming for, i.e. 31 for July, and then round up to the nearest whole number if the outcome isn’t a whole number.

For variable pay staff, the calculations are more in-depth! You are likely to have the number of hours worked already as this should be displayed on your employees’ payslips.

The “usual hours” for variable staff will be calculated based on the higher of either:

  • The average number of hours worked in the tax year 2019 to 2020
  • The corresponding calendar period in the tax year 2019 to 2020

HMRC’s guidance and examples are very detailed in how to calculate “usual hours” and cover a range of circumstances.

I’ve worked out my employee’s usual hours and have their actual hours worked, what next?

Now you will need to work out how much you can claim in terms of furlough pay. This is best explained by way of an example.

In this example, the employee has been continuously furloughed since 1 May 2020 and is usually paid a fixed monthly salary of £2,250. The employee returns to work part-time from 1 July and is furloughed for the rest of their usual hours.

The employee is contracted to work 164 hours in a month but has only worked 80 in July.

  1. Work out 80% of pay up to £2,500 limit = £1,800
  2. Multiply by the number of hours furloughed – 84 (164 – 80)
  3. Divide by the number of usual hours – 164
  4. Minimum furlough pay for July based on hours worked = £921.95 – this is the amount that the employer would be able to reclaim

The employee would be entitled to their normal contractual pay for the hours that they work and would need to be paid at least 80% of their normal pay for the hours that they are furloughed.

If this working arrangement was to continue like this until 31 October, the employer would need to calculate how much of this pay it can claim for as the percentage starts to reduce!

For more detailed examples, please check HMRC’s website here.

 

We are here to support your business, if you have any concerns please call us or email Mark or Andrew.

The content in this blog is correct as at 16/06/2020. See terms and conditions.

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