The Coronavirus Job Retention Scheme – some guidance

HMRC has now issued its guidance on how the Coronavirus Job Retention Scheme will work. It expects the scheme, designed to support employers whose operations have been severely affected by coronavirus, to be up and running by the end of April.

It says employers can use a portal to claim for 80 per cent of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, up to £2,500 a month.

They can also claim the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.

The scheme is open to all UK employers that had created and started a PAYE payroll scheme on February 28, 2020.

Any organisation with employees can apply. As well as businesses, that includes charities, public authorities and recruitment agencies.

Employees you can claim for

Furloughed employees must have been on the PAYE payroll on February 28, 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 February 28 2020, if they are rehired by their employer. Employees hired after that date cannot be furloughed or claimed for.

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.

If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme.

HMRC says employers should discuss with their staff and make any changes to the employment contract by agreement.

They may need to seek legal advice on the process and if sufficient numbers of staff are involved, it says it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.

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. Businesses do not need to place all their employees on furlough.

Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after the February 28 date.

Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this. Those who are shielding in line with public health guidance can be placed on furlough.

If an 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.

What you can claim

Employers need to make a claim for wage costs through the scheme. Fees, commission and bonuses should not be included.

At a minimum, employers must pay their employee the lower of 80 per cent 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 do so.

HMRC plans to issue more 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.

Employees whose pay varies

If the employee has been employed or engaged by an employment business for a full 12 months prior to the claim, businesses 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, they can claim for an average of their monthly earnings since they started work.

If they only started in February 2020, employers can use a pro-rata for their earnings so far to claim.

To claim, you will need:

• your ePAYE reference number
• the number of employees being furloughed
• the claim period (start and end date)
• the 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 the claim.

Employers 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 March 1 if applicable.

Once HMRC has received your claim and you are eligible for the grant, it 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.

Employers must pay the employee all the grant they receive for their gross pay, no fees can be charged from the money that is granted.

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.

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.

That means they must 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.

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