Key points of the coronavirus job retention scheme

Important update as at 16 April 2020 re employee eligibility

We've previously advised how directors and the self-employed might be able to access reliefs if their businesses have been impacted by the coronavirus. In this post we're going to discuss the key points of the coronavirus job retention scheme for businesses with employees. 

Key points of the coronavirus job retention scheme

How much can be claimed?

Probably one of, if not the, most important key points of the coronavirus job retention scheme is the amount your business can claim.

Your business may potentially claim a grant of up to 80% of the wages of your employees  plus the associated Employer National Insurance contributions. It can also claim the minimum automatic enrolment employer pension contributions on that wage for all furloughed employees. This is subject to a cap of £2,500 per month per employee - see below for more details.

What is the definition of furloughed?

Furloughing an employee is an alternative to making an employee redundant or laying them off without pay if your business has been impacted by the coronavirus pandemic.

It is of relevance only for those employees who are not off sick or claiming other statutory employment benefits. If your employees are sick they are eligible for government support under the Statutory Sick Pay (SSP) rules  - see here.

Which employees can be furloughed?

Basically any employee, apprentice or director provided they were employed under an existing employment contract on 28 February 2020. This also includes full-time, part-time, casual and zero hours workers. 

HM Revenue have issued further clarification on eligibility stating the following:

  • You can claim for employees that were employed as of 19 March 2020 and were on your PAYE payroll on or before that date; this means that you will have made an RTI submission notifying of payment of that employee on or before 19 March 2020
  • Employees that were employed as of 28 February 2020 and on payroll (i.e. notified on an RTI submission on or before 28 February) and were made redundant or stopped working for you after that, and prior to 19 March 2020, can also qualify for the scheme if you re-employ them and put them on furlough.

The employees you furlough must not work for you during the furlough period. They continue to be your employees although they may undertake training during the period they are furloughed.

It is not clear at this stage whether they are allowed to take temporary work elsewhere during the furlough period. However it may be that their employment contract currently forbids it.

You'll need to decide which employees are to be furloughed and designate them as such. For example those employees who are unable to work from home might be a good starting point. 

You should then notify the designated employees they are furloughed in writing and clarify whether you will be topping up their wages or paying the 80% amount. It would also be prudent to review their contractual terms beforehand. We are providing our clients with a suitable template letter. Hopefully your own accountant will be able to provide you with something similar.

What wages figure is the relief based on?

Wages are considered to be your employee's monthly earnings. If they are of a fixed annual amount then this is the wages paid in the month to 29 February 2020.

If your employee's salary varies then the following applies:

  • If they have been employed for a full year or more prior to any claim you can claim the higher of their earnings for the same month in the previous year or their average monthly earnings for the 2019/20 tax year. 
  • If employed by you for less than a year, you should take their average monthly earnings since they commenced employment with you.

The grant paid by HM Revenue will be calculated based on your employee's regular contractual pay. For example wages, compulsory commission and past overtime. However it does not include discretionary commission (including tips), payments, bonuses or non cash payments or benefits in kind.

What's the position with overtime?

The grant claimed from HM Revenue is based on regular contractual pay which includes past overtime ( see above)

What should I pay my employees?

The financial circumstances of you and your business may necessitate the requirement to negotiate your employee's contract(s). However it is important to consider employment law as much for yourself as well as for the protection of your employees. If you have any doubts about this we would strongly recommend seeking appropriate legal advice.

It is up to you whether you pay the difference to your employees so they receive their full pay whilst furloughed. This is a decision you'll need to make and also negotiate with your employees as appropriate. However you must pay your employees all the grant your receive from HM Revenue without making any deductions

How do I make a claim?

We understand that the online portal for making claims will be available by the end of April 2020. A claim can only be made every 3 weeks though these can be backdated to 1 March 2020.  You should include the following details with your claim: 

  • The PAYE scheme reference number for your business
  • The number of employees being furloughed
  • The claim period (the start and end date). However the start date cannot be before 1 March 2020
  • The amount claimed. The minimum length of furloughing is 3 weeks
  • Your bank account details and sort code
  • Your contact details

You must calculate the amount to claim yourself, HM Revenue will not do it for you. You can potentially start making the appropriate manual calculations now in readiness for any claim. We have already started to do this where we handle our client's payroll for them. Your own accountant should be able to provide you with calculations in order to make a claim.  

Important update as at 19 May 2020 re period of the claim

The Chancellor has announced that the Coronavirus Job Retention Scheme will continue until the end of October 2020 alongside a proposed relaxation of some of the scheme rules.

One of the key points of the Coronavirus Job Retention Scheme is that furloughed workers must not undertake any work for their employers whatsoever or the grant will not apply. 

From the beginning of August the government plans a relaxation of the rules to allow employees back to work on a part-time basis. The employer will be asked to contribute towards the wage costs currently being borne by the government. 

More details on how the changes to the rules will work are promised by the end of May. The scheme is going to continue in its current form until the end of July in line with the change in rules referred to above.

What is the tax treatment of the HM Revenue grant?

Any payments received from the scheme should be included as a taxable receipt when calculating the profits of your business for either corporation or income tax.

Your Employment costs can  be deducted as normal when calculating your taxable profits.

For more useful information, check out our Ebooks here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at richard@tfaaccountants.co.uk.

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