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Coronavirus Job Retention Scheme – headlines and details that we have so far

03 Apr 2020

Update on the scheme as of 4 April 2020

HMRC has this morning updated their guidance on the Coronavirus Job Retention Scheme (CJRS) and provided some more detail on the questions that we have been asking.

You can also read a quick overview of how to claim your employees’ wages through the scheme found here.

The update has confirmed that HMRC are not expecting to have their claims portal ready until the end of April, but we are hopeful that it might be around 25 April.

The latest guidance does emphasise again that the CJRS is there to help those businesses that have been severely affected by Covid-19, but it is open to all employers who have furloughed employees to make a claim. Employers must remember to discuss with their staff the intention to furlough and make any changes to the employment contract by agreement; legal advice should be sought on the process.

As we know, to claim under the scheme the employer must have set up a payroll by 28 February and they must have enrolled for PAYE online and have a UK bank account.

There has been some tidying up of who is able to be furloughed and this extends to an individual engaging a nanny.

As previously announced any employee who started after 28 February cannot be furloughed. We had hoped that there might be some relaxation or flexibility with this but there hasn’t. Those who are furloughed must not undertake any work whatsoever that provides services or generates revenue to the employer or a company linked or associated to the employer. If an employee takes other work, they must be available to return to work with their employer if they decide to stop furloughing them.

There have been lots of questions about what elements of pay the grant will be made up of as well as about furloughing for part of a month and whether the grant is then apportioned:

  • The grant claim is based on any regular payments that the employer is obliged to make. This includes wages, past overtime, fees and compulsory commission payments. It does not include discretionary bonus (including tips) and commission payments and non-cash payments. Neither does it include any benefits in kind or any benefits provided through salary sacrifice (including pension contributions).
  • Grants will be prorated if your employee is furloughed for part of a pay period, with the claim being made from the start date of the furlough and not the date that the negotiations started.

With regards to salary sacrifice, you can normally change or cancel this because of a life event. HMRC has confirmed that Covid-19 is such a life event that could warrant a change.

The guidance highlights that you can only claim employer’s National Insurance and pension contributions on the 80% you are paying. You must not claim for any additional National Insurance or pension contributions where you top up an employee’s salary, or for any pension contributions above the mandatory employer contribution.

The circumstances under which an employee can or cannot be furloughed remain the same, although some clarity might be needed for employees who are ‘shielding employees’ and those ‘employees with caring responsibilities’. There appears to be some differentiation; for those shielding, they can only be furloughed where they would have been made redundant. We do not know if this was the intention, but it could be because there is some employment law protection for those who are caring for others at home.

The guidance now makes specific mention of eligible individuals who are not employees, but are paid under PAYE and that they can be furloughed. This includes office holders (including company directors), salaried members of Limited Liability Partnerships, agency workers (including umbrella companies) and limb (b) workers. There are specific considerations for each of these, especially around the legal process to follow. For instance, when furloughing a Company Director steps must be taken by the Board of Directors and recorded; once furloughed they can fulfil their statutory obligations but not undertake any work which would generate commercial revenue or provide services to or on behalf of their company. This latter point extends to include a Personal Service Company.

Where training is being undertaken, then this is permitted whilst on furlough, but you must ensure that National Minimum Wage (NMW) is paid in full for any hours spent training; there is an increase to the rates on 1 April.

We will continue to update our blog, as more information becomes available.


[previous post on 26 March 2020]

We now have further guidance from HMRC on the CJRS (see guidance), which is welcome news. It is also worth highlighting that the guidance doesn’t cover every possible scenario and we expect there to be further guidance announced in the coming weeks, as the finer details of the scheme are considered and put into policy.

For those people who have been following this blog to date, we have been outlining what we believe to be the key unanswered questions. The new guidance goes some way to answering these questions, albeit some remain and these are summarised at the end.

What are the pre-requisite requirements for an employer to access the grant?

Employers must have created and started a PAYE payroll scheme on or before 28 February and have a UK bank account to be able to access the grant

  • An employee must be furloughed for the employer to receive the grant
  • An employee who is furloughed, must be furloughed for a period of at least three weeks and for a maximum of three months (although the guidance suggests this may be extended) to qualify for the grant
  • There is no need to furlough all employees and employees can be furloughed on a case by case basis, depending on the employer’s needs
  • An employer can re-furlough an employee after they have returned to work from a previous period of furloughing

Furloughing an employee means they must not undertake any duties of their employment. It is worth noting that as CJRS will be considered on an employment by employment basis someone having a second job or taking on a new job while furloughed does not impact the CJRS grant the employer receives for the employee.

Similarly an employee can take part in volunteer work or training, which does not provide services to or generate revenue for the employer who has furloughed them. It’s worth noting however that if the employee is undertaking training, this may be considered working time for minimum wage purposes, and employers will need to ensure that minimum wage is paid if the training is working time.

The guidance also expands on who can make a claim for the grant and confirms that where a company is in administration, the administrator will be able to access the scheme.

Which employees can the grant be claimed for?

The grant will only be available for employees included on payroll on 28 February, so will therefore not cover new hirers taken on after this date.

The grant is available for both full time and part time employees, as well as directors and casual workers, as previously announced by the Chancellor.

However, the concern for directors is that directors will often take a low or no salary from the business. Instead they will often utilise dividends to top up their income, as and when they have the profits to do so. As dividends are not subject to PAYE, the dividend amounts are unlikely to form part of the CJRS calculation for the director. Directors in this position are likely to find that should they qualify for a CJRS grant, the amount paid would likely be 80% of a low salary.

A further concern is that a director must be non-active to be furloughed, but given they will continue to need to manage the business in some way, they are unlikely to be completely in-active and therefore may fail the CJRS requirements.

Employees entitled to statutory pay, such as statutory sick pay and maternity pay, will continue to receive these payments and will not be able to be furloughed while in receipt of the statutory payments.

The guidance does however confirm that employees who fall within the vulnerable category and are required to undertake shielding are able to be furloughed and access the scheme.

The scheme is open to public sector employees, but the Government view is that the majority of public sector workers are essential workers and unlikely to be furloughed. Even where the public sector role is non-essential, the suggestion is that it would be possible to re-deploy them to an essential role, rather than furlough the worker.

On what earnings will the grant be based on?

The grant will be based on regular earnings excluding any fees, commissions or bonuses. The grant will provide reimbursement for 80% of the earnings figure, subject to a total gross payment to the employee of a maximum of £2,500 per month.

The total maximum grant available to the employer will be higher than the £2,500, as it will also cover the employer national insurance and minimum auto-enrolled pension contributions due.

Based on our initial calculations, we believe the cost of making a gross payment to a furloughed employee during the 2020/21 will be as follows:

Gross Payment£2,500.00
Employer NI£243.98
Employer Pension£59.40
Total grant available£2,803.38

Employees will remain liable to PAYE, employee national insurance and any other usual payroll deductions (such as student loan repayments) on the furloughed payment made to them by their employer. The employer may choose to pay more than the amount of the grant paid to them by the Government.

Zero hour contracts and employees with varying pay

The latest guidance details how those with irregular earnings CJRS grant entitlement will be calculated.

The calculation of the grant entitlement is split within three categories;

  • Employees with more than twelve months service
  • Employees with less than twelve months service
  • Employees who joined in February 2020

For the employees who have more than twelve months service, the grant is calculated as the higher of:

  • The same month’s earning from the previous year
  • Average monthly earnings for the 2019/20 year

For employees with less than twelve months service, the grant is calculated as an average of their monthly earnings since the start of their employment.

For employees who joined during February 2020, the grant can be based on a pro-rata of their earnings.

What do employers need to be able to make a claim and how will claims be made?

Employers can only make one claim every three weeks at most, which presumably will mean the claim is made on a PAYE scheme basis, rather than on an individual basis as each employee is furloughed.

Employers will make the claim in line with the actual payroll amounts, and will do so at the point at which the payroll is run or in advance of an imminent payroll.

To make a claim, employers will need the following information:

  • your PAYE reference number
  • the number of employees being furloughed
  • the claim period (start and end date)
  • amount claimed (per the minimum length of furloughing of 3 weeks)
  • your bank account number and sort code
  • your contact name
  • your phone number

The payment will be made via BACS to the employer, which explains the requirement to have a UK bank account.

As indicated by the initial announcement of the scheme on 20 March, claims will need to be made on a reimbursement basis, meaning employers will need to fund the payment to the employees before they are then able to make a claim. The latest guidance confirms this by stating that “You [the employer] should make your claim… at the point at which you run your payroll or in advance of an imminent payroll”.

We do not anticipate that the grant payment will be instantaneous from the point the claim is made, meaning there will be a cash flow outlay which will need to be bridged by the employer initially.

As we have no guidance on how long it will take for the payment to be received, employers who will struggle to fund the payment to employees initially, should consider how they intend to cover the costs. Arranging a business interruption loan (read our blog here) may provide a solution and we would advise businesses to take step to secure the financing well in advance of their payrun.

It should be noted that HMRC have indicated that they may retrospectively audit the validity of claims being made. With this in mind, should you need assistance in making the claim, PKF Francis Clark would be happy to support you with this, to ensure the amount claimed is correct.

Interaction of the grant with a business’ taxable profits

The grant received should be included in calculating the taxable profits of the business for income tax and corporation tax purposes.

The furloughed payments actually made to the employee and associated employer costs will also be deductible in arriving at the taxable profits of the business.

Unanswered questions

I’m sure many clients will have unanswered questions as to how the CJRS will work for them and we hope to be able to answer these questions for you as we get further guidance in the coming days and weeks.

For me, the key questions we still need guidance from government on are:

  1. How long will employers have to wait to receive payment from CJRS? The initial guidance suggests the scheme will be paying out by the end of April at the latest, but there is no further guidance on whether particular businesses or sectors will be prioritised.
  2. Can an employer delay making payment to employees until they receive funding from the CJRS? As already discussed, employers will have to make the payment initially and are then reimbursed by the CJRS. However, there is no guidance on whether it will be possible to delay payment of wages becoming due this month until April, when the scheme should be up and running. However, as the guidance suggests using the business disruption loan to bridge the cash flow until the employer is reimbursed by CJRS – this would suggest not.
  3. Will the employer have to fund the cost of the apprenticeship levy on payments made under grant? While the grant covers the cost of employer national insurance and minimum pension contributions, it doesn’t appear to provide relief for the apprenticeship levy payments.
  4. Will holiday entitlement continue to accrue during the period in which the employee is furloughed? This is an employment law issue and the guidance makes clear that there will be a variety of legal issues that will need to be addressed with employees to ensure a claim can be made. Presumably, holiday pay accruing will be one such area to be addressed.
  5. The guidance explains that the grant will be calculated on regular earnings excluding bonuses and commissions, and goes on to provide details on how to calculate the earnings of salaried employees and employees with variable pay. It does not however make clear if an employer will be able to honour existing rises already agreed, or deal with instances where an individual’s role in the business has changed i.e. through promotion, for grant calculation purposes. As the earnings, are based on 28 February pay, the assumption would be there is no provision for pay increases.
  6. Similarly, the guidance only talks about grant for salaried employees covering 80% of salary. Will the grant take account for other payments a salaried employee might receive such as; overtime, allowances (for instance a car allowance) gratuities and service charges provided to employees through the payroll – this is particularly important source of income for employees in the hospitality industry.
  7. How will the CJRS apply to personal service companies? Particularly in instances where they have subjected the income of the company to a deemed employment income tax charge, with PAYE paid on the amount? We’ve now had guidance issued by the Cabinet Office instructing government departments that they should make furlough payments to personal service companies in line with the CJRS. While this appears to be discretionary for public sector personal service company contractors, clarity on the wider impact for personal service companies would be welcome.
  8. Various sources have suggested that directors can be furloughed, while still being able to undertake their statutory duties – formal confirmation is needed on what directors can and cannot do whilst furloughed.
  9. For employees who are part time, will there be any pro-rata of the £2,500 cap, to recognise that they are not in full time employment?
  10. How will benefits in kind, particularly those which are payrolled benefits and included within gross pay on payslips and RTI reports, interact with the scheme? Will these be included within the definition of earnings?
  11. In respect of the re-furloughing of workers, while a minimum period of furloughing is within the guidance, there does not appear to be a minimum period of working time that an employee must do before they are able to be furloughed again. Will there be a minimum period of working time required between periods of furlough for the CJRS to be available?
  12. A clearer definition of what constitutes regular earnings will be needed to be able to make a claim. However, the guidance does say further information will be provided to clarify how to calculate the claim that can be made.
  13. What does it mean to be on the payroll at 28 February? Is it enough for an employer to have completed a new starter form for the employee on or before this date, or does the employee need to have been included on a Full Payment Submission (FPS)?
  14. The wording from the latest guidance suggests an employer doesn’t have to apply the 80% restriction to an employee with varying earnings. I believe this is an oversight in the guidance, and further guidance will likely correct this oversight.
  15. The guidance explains that Statutory Maternity Pay takes precedence over furloughing an employee while they remain on maternity leave, but does not give any specific guidance on the position for employees returning from maternity leave. The guidance does however explain that employees returning from sick leave, who’ve been in receipt of Statutory Sick Pay, can be furloughed after their sick leave ends. It would be logical to assume both types of statutory leave will interact in the same way with the CJRS and we would therefore expect the employee to be able to be furloughed when they return to work, but need additional guidance to confirm this.


[original post on 22nd March 2020]

What do we know so far about the Coronavirus Job Retention Scheme announced in the Chancellor’s speech of 20 March?

Well based on the speech itself and information on the GOV.UK webpages as at 23:00 on 20 March.

What it is and what will it cover?

The Coronavirus Job Retention Scheme will be a government grant – to reimburse employers for 80% of furloughed workers wage costs, to a cap of £2,500 per month.

The latest guidance says that employers can choose to top-up pay, either for the unfunded 20% of pay or the amount above £2,500 for higher earners, but this will not be a formal requirement to obtain access to the scheme.

Further, the scheme will be:

  • Backdated to March 1st
  • Open initially for at least three months but extended ‘for longer if necessary’.

Total funding pot available

As per the Chancellor’s speech “I am placing no limit on the amount of funding available for the scheme. We will pay grants to support as many jobs as necessary.”

Who is eligible for the scheme?

All UK businesses are eligible (or in the Chancellor’s words “Any employer in the country – small or large, charitable or non-profit – will be eligible for the scheme.”)

Scheme administration

Coronavirus Job Retention Scheme (CRJS) will be administered by HMRC.

Employers will need to:

  • Designate affected employees as ‘furloughed workers’ (see further below)
  • Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required)

As noted above the grant is a reimbursement to the employer therefore the employer will make the wage/ salary payment to the furloughed worker and then be reimbursed by HMRC.

When will the scheme be live?

No set date but the following are indications it will not be immediate:

  • “HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.”
  • “HMRC are working night and day to get the unprecedented Coronavirus Job Retention Scheme up and running and we expect the first grants to be paid within weeks.”
  • “If your business needs short term cash flow support, you may be eligible for the Coronavirus Business Interruption Loan Scheme”

What is a furloughed worker?

Furloughing will be a new term for many employers, and is a term not previously defined in employment law. Our current understanding of the term in relation to the CJRS, is that it refers to a temporary non-active period for an employee.

The ability to put an employee on to furlough leave is something that employment contracts will unlikely provide for, given the term has not previously been relevant to employment law. With this in mind, to take advantage of the CJRS, employers will need to ensure that their employment contracts updated and employees are properly consulted on the changes to their contract to be able to take advantage of the CJRS.

Unanswered questions

When thinking about the answers to some of these questions, it’s helpful to understand the reasons for the introduction of the CJRS; it has been introduced to encourage businesses to follow the latest medical advice for Coronavirus and ensure businesses who rely on physical interactions close their doors to the public.

Where a business can carry on without those physical interactions, for instance by working remotely, it should be business as usual and the policy doesn’t appear to be designed as a catch all wage subsidy for the UK workforce.

I’m sure many clients will have unanswered questions as to how the CJRS will work for them and we hope to be able to answer these questions for you as we get further guidance in the coming days and weeks.

For me, the key questions we need guidance from government on are:

  1. How do employers know if they can furlough an employee? Are there employment law and rights implications? The guidance from Citizen’s Advice would suggest there are limitations on when this can be done (https://www.citizensadvice.org.uk/work/leaving-a-job/redundancy/layoffs-and-short-time-working/), so will additional measures be put in place to allow for this to happen?
  2. How long will employers have to wait to receive payment from CJRS? The initial guidance suggests the scheme will be paying out by the end of April at the latest, but there is no further guidance on whether particular businesses or sectors will be prioritised.
  3. Can an employer delay making payment to employees until they receive funding from the CJRS? It would appear from the initial guidance that employers will have to make the payment initially, and are then reimbursed by the CJRS. However, there is no guidance on whether it will be possible to delay payment of wages becoming due this month until April, when the scheme should be up and running. The guidance does point to the ability to use the business disruption loan (read our blog here for further information) suggesting this can be used to bridge the cash flow until the employer is reimbursed by CJRS.
  4. What happens if an employer has already had to terminate employees before the CJRS was announced? The initial guidance does suggest that the CJRS will look to support employer’s employees who were employed at 1 March, so some clarity is needed on whether terminated employees can be re-hired and qualify for CJRS.
  5. The initial guidance says the scheme will be backdated to 1 March, does this mean that it will only apply to those employed on, or before, 1 March? No clarity has yet been given on the implications for those newly employed in March.
  6. What will the CJRS payment be for someone returning from maternity leave post 1 March? Again, I would expect to see some form of historic pay averaging to calculate the CJRS payment, which rather than focus on an employees pay, looks at the period prior to maternity leave, perhaps factoring in any pay rises received while on maternity leave. This is another area we will need detailed guidance to ensure the calculations of what can be claimed in CJRS are correct.
  7. The payments under CJRS look much more favourable to an employee than SSP, with that in mind, guidance will be need to determine when an employee must be included within SSP as opposed to the CJRS. From an employer’s perspective, lower levels payments attracted by SSP, may be less costly than using CJRS (should CJRS payments be subject to employer national insurance) and employers may prefer in such instances to pay SSP as opposed to CJRS.
  8. Will holiday entitlement continue to accrue during the period in which the employee is furloughed?

Sources of further information

I would anticipate HMRC will carry details of CJRS in due course but for now I will be keeping an eye on GOV.UK website and specifically the document found here which does appear to be regularly updated.

If you have any questions on this, please do not hesitate to contact me, or your usual PKF Francis Clark adviser.

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