On 20th March 2020 the Chancellor outlined a package of measures that have never been seen before in order to protect millions of jobs and incomes in response to the coronavirus crisis.
A new Coronavirus Job Retention Scheme (CJRS) has been set up to help pay people’s wages. Under this scheme all employers will be able to access support to continue paying part of their employees’ salary for those employees that would have been laid off during this crisis. It is available to employers with a PAYE scheme that was created and started on or before 19 March 2020 (and that HMRC were notified through an RTI submission on or before 19 March 2020) including:
- Recruitment Agencies (agency workers paid through PAYE),
- Public Authorities
The employer must have a UK bank account and be enrolled for PAYE Online.
Important updates announced on 31 May!
There were some important changes to the CJRS announced by the Chancellor on 31 May. These changes are outlined here.
How does this scheme work?
UK workers of any employer who are placed on the CJRS can keep their job, with the government paying a grant worth 80% of an employee’s usual wage costs, up to a cap of £2,500 per month, plus the associated Employer National Insurance contributions and minimum auto-enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses are not included in this grant. The grant will be backdated to 1 March and will be open until the end of October.
If the employer wishes to access the CJRS, they need to discuss with the employee them becoming classified as a furloughed worker. This would mean that the employee is kept on the employer’s payroll, rather than being laid off. Please note that these employees must have been on your PAYE payroll on 28 February 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 also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.
To qualify for this scheme, the furloughed employee cannot undertake work for the employer whilst they are furloughed. This includes providing services or generating revenue. The employee will remain employed whilst furloughed, and while on furlough the employee’s wage will be subject to usual income tax and other deductions. The employer can choose to fund the differences between the CJRS payment and the employee’s normal salary, but does not have to.
If the employee’s salary is reduced as a result of these changes, they may be eligible for support through the welfare system, including Universal Credit.
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.
Employees hired after 19 March 2020 cannot be furloughed or claimed for in accordance with this scheme!
The use of the term ‘grant’ in some of the published details of the CJRS could indicate that employers may ultimately be required to repay sums reimbursed under the scheme but we believe this will only be in circumstances where the terms of the grant are breached – e.g. if employees continue to work whilst furloughed.
What do I need to do?
You will need to:
- Designate affected employees as “furloughed workers” and notify your employees of this change
- Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal
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 1 March if applicable.
Once HMRC have received your claim and they have checked the details 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.
Please note that claims should be started from the date that the employee finishes work and starts furlough, not when the decision is made, or when they were written to confirming their furloughed status.
You must pay the employee all the grant you receive or their gross pay, no fees can be charged from the money that is granted.
HMRC will provide a grant to cover the wages of the workforce who remain on payroll but are temporarily not working (as mentioned above).
HMRC got the CJRS up and running on 20 April and the first grants were paid by the end of April.
The scheme will end in October and at this time 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).
Below is some advice we have received in respect of the notification to the employee. We strongly recommend, however, that you check the contents of your furlough letter with your own lawyers and/or HR specialists before sending them.
If you decide that putting employees on furlough is the best option for you and your employees, then you need to prepare a notification letter. Your furlough notice letter should contain the following:
- Address – This is a formal letter, a furlough notice should clearly state the date, employee’s name, and their address.
- Purpose – State the purpose of the letter. Get straight to the point. Include the employee’s position, department, reason for the furlough, and information about any changes to employee benefits. It is advisable to tell the employee that this action does not reflect dissatisfaction in job performance.
- Detail – Explain what a furlough is, determine the length of the furlough, and communicate employee benefits during this period to employees.
- Future communication – Offer a way for the employee to keep in touch. End the letter on a positive note.
Example of how the calculations will work prior to 1 August 2020
A Ltd employs Mr B at an annual salary of £24,000, so £2,000 per month. Mr B has opted out of auto-enrolment.
Each month, Mr B currently receives net pay of £1,655 which is after deducting PAYE of £191 and Employees’ National Insurance of £154. On this salary, the employer pays Employers’ National Insurance of £177.
The available grant for the employer is the lower of:
a) 80% of £2,000, and
Plus employers’ NIC on this amount.
So A Ltd will receive a grant of £1,600 plus £122 = £1,722.
The cash required by A Ltd to furlough Mr B based on maintaining the existing salary is £455 per month. It is a matter for employment law whether the employer is required to pay this top up. Discussions with employees may have agreed that the employee has agreed to a different arrangement during their furlough.
HMRC will issue more guidance on how employers should calculate their claims for Employers National Insurance and minimum auto-enrolment employer pension contributions, before the scheme becomes live. However, if you choose to provide top-up salary in addition to the grant, the Employers’ National Insurance and auto-enrolment employer pension contribution on any additional top-up salary will not be funded through this scheme. Nor will any voluntary auto-enrolment contributions above the mandatory employer contribution.
The way these calculations will work post 1 August 2020 will be detailed in our update blog, click here for more details.
What you’ll need to make a claim
To claim, you will need to ensure that you have access to your Government Gateway with HMRC and have PAYE for Employers as a service, if you do not have this set up, please check our guidance here.
In order to submit your claim to HMRC through your Government Gateway, you will need to have the following information:
- your employer PAYE reference number
- the number of employees being furloughed
- National Insurance Numbers for the furloughed employees
- Names of the furloughed employees
- Payroll/employee number for the furloughed employees (optional)
- your Self Assessment Unique Taxpayer Reference or Corporation Tax Unique Taxpayer Reference or Company Registration Number
- the claim period (start and end date)
- amount claimed (per the minimum length of furloughing of 3 consecutive 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.
If you have fewer than 100 furloughed staff you will be asked to enter details of each employee you are claiming for directly into the system – this will include their name, National Insurance number, claim period and claim amount, and payroll/employee number (optional).
We believe that this will be highly time consuming as each detail for every furloughed employee needs to be entered manually into HMRC’s portal. Currently it is unknown whether payroll software providers will integrate their systems with HMRC’s portal. You should also retain all records and calculations in respect of your claims.
Frequently asked questions
We have created a separate page of FAQs for this scheme, please access this here.
We are here to support your business, if you have any concerns please call us or email Mark or Andrew.
This information is correct as at 1 June 2020 and is our understanding of this policy and how this will work based on the information published so far. It should not be relied on for advice at this stage but is intended to give an indication of how the scheme will work. See terms and conditions.
Since this blog, HMRC have created new guidance on how to calculate the 80% claims, details can be found here.