Coronavirus Job Retention Scheme – what do we know now?

27th March 2020

The Coronavirus Job Retention Scheme or CJRS is intended to save people’s jobs where they cannot work temporarily due to the COVID-19 crisis.

As with many of the financial measures introduced to help with the crisis, it was initially announced with little detail, leaving a lot of unanswered questions.  However, yesterday the Government released further guidance which we have outlined below.

What we know

The scheme is available to all UK employers that had an active PAYE scheme on 28 February 2020. It allows employers to claim towards the cost of employees that are unable to work.  Employers can claim up to £2,500 per month (or 80% of usual wage costs if lower) plus the associated Employer National Insurance contributions and minimum auto-enrolment employer pension contributions on that amount.  The amount claimed is based on the employee’s actual salary before tax, as at 28 February 2020, i.e. it is based on previous pay.

Such employees will be designated as “furloughed workers” and will not be able to work at all for their employer during the period of furlough.  However, they can take part in volunteer work or training.

The CJRS will apply for three months from 1 March 2020 but will be extended if necessary.  It will apply to employees who were on the payroll at 28 February 2020.  The minimum time that an employee can be furloughed is 3 weeks.

Employers will need to consider employment law when planning to designate an employee as a “furloughed worker” as most employment contracts will not permit this.  It may therefore be necessary to enter into negotiations – many employees will be willing to accept 80% of their salary if the alternative is losing their job.  An employer can choose to top up the employee’s salary beyond the amount covered by the CJRS but this is not a requirement of the scheme.

A new online portal will be developed for employers to submit details of the designated employees and their wages in order to make a claim under the scheme.  The money received will be a grant, not a loan, and will be taxable on the employer.  Employers will need to pay the employees’ salaries first through the payroll/RTI before making a claim so will need to consider cash flow.  The employees’ salaries will be taxable in the normal way and the employees will retain their previous employment rights, including SSP, maternity and other parental rights, and rights to redundancy payments.

Deciding who to designate may not be straightforward, for example a company may have five employees who are all able to work at around 50% capacity.  You cannot “half” furlough an employee and therefore the work would need to be reorganised so that some people continue to work whilst others do no work.  This could be a welcome compromise, for example if a person is struggling with childcare.

How do I calculate the amount I can claim?

For full time and part time salaried employees, their actual salary before tax, as of 28 February 2020, should be used to calculate the 80%.  Fees commissions and bonuses should be excluded.

For an employee whose pay varies (for example flexible or zero hours contracts), you can claim for the higher of:

  • the same month’s earnings from the previous year; and
  • average monthly earnings for the 2019-20 tax year.

The grant you can claim is the lower of the 80% calculated above or £2,500 per month.  You can also claim the associated Employer National Insurance contributions and minimum auto-enrolment employer contributions related to the 80%/£2,500.  The amount claimed will form part of your taxable profits.

So what do I need to do?

When you have decided which employees to place on furlough, you will need to discuss this with them and make any changes to their employment contract by agreement.  You may need to seek employment law advice.

To be eligible to make a claim you need to write to the employee to confirm that they have been furloughed and keep a record of this.

The online portal is not yet available to submit details of furloughed employees to HMRC.  Further guidance is therefore to come on the detailed application process, but this should not prevent you deciding now who to furlough and taking appropriate action.

A claim can only be submitted once every 3 weeks.

More questions?

The above is an overview of the latest guidance but you may have more questions on specific situations or employees and how the rules will apply to them.  If so, just let us know and we will be happy to help.

Stay safe.

Insights

Is it time to charge rent for your property?

30th July 2020

We explain why the changes to the Entrepreneurs' Relief lifetime limit might mean you should rethink your rental strategy.

Read More

Summer Economic Statement

10th July 2020

An overview of the Chancellor's announcements in Summer Economic Statement.

Read More

COVID-19 – CJRS and SEISS update and some key deadlines

3rd June 2020

A look a the latest announcements about the Coronavirus Job Retention Scheme and the Self-Employment Income Support Scheme including some important deadlines to watch out for.

Read More