Coronavirus Job Retention Scheme

Applying for the scheme

The scheme opened for applications on 20 April 2020.  This has to be done through HMRC’s website. 

The original scheme closed to new entrants on 30 June, with the last three-week furloughs before that point commencing on 10 June. This means the final date by which an employer could have furloughed an employee for the first time was the 10 June.

The government has announced an extension to the scheme. Under the extension employees needed to be employed by the employer on 30 October and had to have been on an employer’s PAYE payroll between the 20 March 2020 and 30 October 2020 and the employer has to have made a PAYE RTI submission to HMRC notifying a payment of earnings for that employee. Neither the employer nor the employee needs to have previously used the scheme. Currently the scheme is due to end on 30 April 2021 but this is constantly under review.  

From March until the end of June to be eligible for the grant, employees couldn’t do any work for or on behalf of the organisation. This included providing services or generating any revenue.

From 1 July 2020, businesses were given the flexibility to bring furloughed employees back part-time. Individual firms decided the hours and shift patterns their employees would work on their return, so they could decide on the best approach for them. Employers are responsible for paying their wages while in work. The grant can continue to be claimed for the normal hours not worked.

HMRC has produced a step by step guide for employers. 

Eligibility

It’s open to any UK organisation with employees, but there are restrictions on certain public sector organisations and those receiving public funding. 

The original scheme closed to new entrants from 30 June 2020. From this point onwards, employers were only able to furlough employees they had furloughed for a full three-week period prior to 30 June 2020.  This means the final date by which an employer could furlough an employee for the first time was 10 June, in order for the three-week furlough period to be completed by 30 June 2020. Employers had until 31 July to make any claims in respect of the period to 30 June 2020.

The scheme was extended at the end of October and again in mid-December and under the extensions employees had to be on an employer’s PAYE payroll by 30 October 2020. A real time information (RTI) submission notifying payment for that employee to HMRC must have been made between 20 March and 30 October 2020. Employees don't need to have been furloughed before. When claiming the grant for furloughed hours, employers need to report and claim for a minimum period of 7 consecutive calendar days.

Who to include 

Under the original scheme an employer could include any employees who were on the employer’s PAYE payroll:

• on or before 19 March 2020, and
• were notified to HMRC on a PAYE RTI submission on or before 19 March 2020

A PAYE RTI submission notifying HMRC that payment had been made for an employee must have been made on or before 19 March 2020. Any employees not included in a PAYE RTI submission on or before 19 March 2020 couldn’t be furloughed or claimed for as part of the original scheme.

Under the extended scheme an employer can include any employees who were on the employer’s PAYE payroll:

• between the 20 March 2020 and 30 October 2020, and
• were notified to HMRC on a PAYE RTI submission on or before 30 October 2020

A PAYE RTI submission notifying HMRC that payment has been made for an employee must have been made between 20 March and 30 October 2020, notifying a payment of earnings for that employee.

If an employee had been made redundant or stopped working for the employer or after 23 September 2020 they can be re-employed and put on furlough. This applies as long as the employee was employed and on the employer’s PAYE payroll on or before 23 September 2020. This means an RTI submission notifying payment in respect of that employee to HMRC must have been made between 20 March and 23 September 2020.

Neither the employer nor the employee needs to have previously used the scheme.

Employee communications

To be eligible for the grant, employers had to write to the employee confirming they’ve been furloughed and keep a record of this communication. They also had to discuss this with their employees and make any changes to their employment contract by agreement.

When the scheme changed in July and employers started to bring their employees back to work, to be eligible for the grant, employers had to agree with their employees any new flexible furloughing arrangement and confirm that agreement in writing. 

They may need to a start group consultation processes to get agreement and change the terms of employment. This includes considering any changes to pension contributions or rights.

When employers are making decisions in relation to the process equality and discrimination laws will apply in the usual way. So some employers may also want to get legal advice.

Employers don't need to furlough all staff

Employers don’t need to place all their employees on furlough.

They can have a mix of those on furlough who cannot do any work, some on reduced hours and pay and some still being paid in full. However, they can only claim for those designated as furloughed.

Furlough pay

HMRC has a calculator to help employers work out the figures they needed when they completed a claim through the scheme. It also gives a detailed breakdown of calculations for each pay period.

March to June

As a minimum, employers had to pay their employee the lower of 80% of their regular wage or £2,500 per month, the employer also had to pay the associated employer NICs and minimum automatic enrolment employer pension contributions on that wage.  

Employers could also choose to top up an employee’s salary beyond this, but there was no obligation on the employer to do this as part of the scheme. They also needed to pay the employee all the grant they received for their gross pay. They couldn’t charge any fees from the grant or allow any salary sacrifice agreement to reduce to reduce the level of grant received.

July

From 1 July 2020, employers could bring back to work employees that had previously been furloughed for at least 3 consecutive weeks for any amount of time and any shift pattern, while still being able to claim through the scheme for their normal hours not worked. 

From 1 July 2020, employers were able to agree any working arrangements with previously furloughed employees. Flexible furlough agreements can last any amount of time. Employees can enter into a flexible furlough agreement more than once. Employers were still able to claim the furlough grant for the hours their flexibly furloughed employees didn’t work, compared to the hours they would normally have worked in that period.

Where a previously furloughed employee started a new furlough period before 1 July this furlough period had to be for a minimum of 3 consecutive weeks. This was the case regardless of whether the 3 consecutive week minimum period ends before or after 1 July.

For example, a previously furloughed employee could start a new furlough period on 22 June which would have to continue for at least 3 consecutive weeks ending on or after 12 July. After this the employee could then be flexibly furloughed for any period. However, after 1 July, employers cannot make claims that cross calendar months, so the employer would need to make a separate claim for the period up to 30 June.

Although flexible furlough agreements can last any amount of time, unless otherwise specified the period that the employer claims for must be for a minimum claim period of 7 calendar days.

Employers could still choose to top up employee wages above the scheme grant at their own expense if they wished.

August

The government paid 80% of wages up to a cap of £2,500. Employers paid the employer NICs and the pension contributions.

September

The government paid 70% of wages up to a cap of £2,187.50. Employers paid employer NICs and pension contributions and 10% of wages to make up 80% total up to a cap of £2,500.

October

The government paid 60% of wages up to a cap of £1,875. Employers pay employer NICs and pension contributions and 20% of wages to make up 80% total up to a cap of £2,500.

November to April 2021

The government will pay 80% of wages up to a cap of £2,500. Employers pay the employer NICs and the pension contributions.

Summary

Working out how much to claim

From March to the end of July

The grant covered whichever was the lowest of either 80% of an employee’s regular earnings or £2,500 per month, plus the associated employer NICs and minimum automatic enrolment employer pension contributions on any subsidised earnings.

Employers had to calculate the 80% using the employee’s actual earnings before tax, as of their last pay period prior to 19 March 2020 and they couldn’t include any discretionary fees, commission or bonuses. Any regular payments the employer is obliged to pay including past overtime, fees and compulsory commission payments could be included.

For the majority of employers with full-time or part-time employees on a set salary, employers have to work out the following for the claim period:

1. The total amount being paid to furloughed employees (employers can claim for 80% of the employee’s wages – up to a maximum of £2,500 a month per employee).
2. The total employer NICs.
3. The total employer pension contributions (up to 3% of qualifying earnings).

Between August and October

The amount the employer could claim for started to reduce. From August it was not possible to claim for employer NICs or employer pension contributions. In September and October the amount the employer could claim for earnings reduced to 70% in September and 60% in October.   

Between November and April 2021

The amount the employer can claim for earnings increased back up to 80%, it is not possible to claim for employer NICs or employer pension contributions. The government is constantly reviewing the scheme.

Example - calculation for an employee on a fixed salary

• An employee started work for Gilbert Ltd in 1997 and is paid a regular, fixed monthly salary on the last day of each month.
• They are also automatically enrolled into the workplace pension.
• The employee agreed to be placed on furlough from 21 March 2020, at 80% of their salary. 

1. Calculating the grant for gross pay

The employee was paid £2,400 in gross salary for February, the last full monthly pay period before 19 March 2020.

• 21 March to 31 March is 11 days.

So the reference salary for the part of March in which the worker is furloughed is:

• £2,400 divided by 31 days in March = £77.42,
• £77.42 multiplied by 11 days of furlough = £851.62

Gilbert Ltd can claim 80% of this amount, up to the ‘maximum amount’ for the time on furlough in March:

• 80% of £851.62 is £681.30

The maximum amount test is:

• Monthly maximum of £2,500 divided by 31 days in March = £80.65,
• £80.65 x 11 days of furlough = £887.15

Gilbert Ltd claims the lower amount, £681.30, for the employee’s gross pay in March.

2. Calculating the grant for employer NICs for March to July 

The employee’s gross pay at the end of the month is made up of:

• £1,548.40 of salary funded by Gilbert Ltd, for 1 to 20 March (20 days), and
• £681.30 of pay funded by the scheme for the remaining 11 days of March.

The employer NICs due on the total gross pay of £2,229.70 is £208.48 ((£2229.70 - £719) x 13.8%)):

• Step 1: £208.48 divided by 31 days in March = £6.73
• Step 2: Daily employer NICs amount of £6.73, multiplied by 11 furlough days = £74.03

Gilbert Ltd claims £74.03 for employer NICs due on the employee’s March pay.

3. Calculating the grant for employer pension contributions

The monthly lower level of qualifying earnings of £512 (for March 2020) is apportioned based on the number of days in the month to the qualifying furlough days:

• £512 divided by 31 = £16.52, £16.52 multiplied by 11 days = £181.72

The minimum level of auto-enrolment pension contributions on the £681.30 furlough pay is therefore:

• (£681.30 - £181.72) x 3% = £14.99

This is the lower of £14.99 or the employer pension contributions due on the furlough pay under the terms of the pensions scheme. Gilbert Ltd claims £14.99 for the employer pension contributions for March.

Total claim for employee

Gilbert Ltd claims a total of £770.32 from the scheme for the employee in March. This is made up of:

• £681.30 for gross pay,
• £74.03 for employers NICs and
• £14.99 for employer pension contributions

Gilbert Ltd has checked that they are not claiming for more than they are going to pay out.

Variable pay

If the employee has been employed (or engaged by an employment business) for a full 12 months prior to the claim, they 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

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

Tax

While on furlough, the employee’s earnings will be subject to usual income tax and other deductions. And all employers are still responsible for the associated employer NICs.

Note

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.