Back to Basics
The Coronavirus Job Retention Scheme is a temporary scheme open to all UK employers and individuals employing domestic staff under a PAYE scheme for at least four months starting from 1 March 2020. It is designed to support employers whose operations have been severely affected by coronavirus (COVID-19).
Employers can use a portal to claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. Employers can use this scheme anytime during this period.
Can my business make a claim?
Any UK organisation with full or part time employees can apply, including companies, partnerships, co-operatives, sole traders, charities and recruitment agencies (agency workers paid through PAYE).
You must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.
How do I furlough staff?
HMRC have confirmed that this decision must be put in writing to the employee and the employer must retain a record of this communication for five years. Where the office holder is a company director or member of a Limited Liability Partnership (LLP), the furlough arrangements should be adopted formally as a decision of the company or LLP.
Employees you can claim for
Furloughed employees must have been on your PAYE payroll on 19 March 2020, and can be on any type of contract, including:
- full-time employees
- part-time employees
- apprentices
- employees on agency contracts
- employees on flexible or zero-hour contracts
- directors and other office holders (but only on their PAYE income)
- salaried members of Limited Liability Partnerships (LLPs)
- nannies and other domestic staff
- foreign nationals or UK nationals working abroad but on a UK payroll
Any employees that were employed as of 28 February 2020 (and on the payroll on or before 28 February) and were made redundant or stopped working after that date but prior to 19 March 2020, can also qualify for the scheme if their employer re-employs them and puts them on furlough.
Can my staff still work when furloughed?
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.
Are any of my staff excluded from the scheme?
If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and you will have to continue paying the employee through your payroll and pay their salary subject to the terms of the employment contract you agreed.
Employees who were not on your PAYE scheme before 19 March cannot be furloughed or claimed for in accordance with this scheme. You must either continue to employee them or place them on unpaid leave. They will be able to apply for Universal Credit.
You do not need to place all your employees on furlough. However, those employees who you do place on furlough cannot undertake work for you.
If your employees are on unpaid leave
Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 19 March
If your employees are or will be on paid leave
Holiday will continue to be accrued while the individual is furloughed as provided for in their employment contract
If your employees are on Statutory Sick Pay
Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this.
Employees who are self-quarantining in line with public health guidance can be placed on furlough.
If your employee has more than one job
If your 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.
If your employee is also a director
Being a Director or Secretary of a company does not disqualify them from the scheme. In addition, Directors or Secretaries will be able to continue undertaking their statutory duties while furloughed, such as completing company accounts etc. If they have two contracts with your Company (as an employee and as a director) you will need to combine these payments when calculating the amount to be claimed.
If your employees do volunteer work or training
A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for, or on behalf of your organisation.
However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the National Living Wage (NWL) / National Minimum Wages (NMW) for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
What if I receive grants from local authorities to part cover the salaries of certain staff?
The 4 April HMRC guidance says: “Where employers receive public funding for staff costs, and that funding is continuing, we expect employers to use that money to continue to pay staff in the usual fashion – and correspondingly not furlough them. This also applies to non-public sector employers who receive public funding for staff costs.”
This has caused alarm for employers who receive some sort of public funding even though they are not strictly in the public sector, such as nurseries receiving early years’ funding and universities. For many this public funding may be only a small proportion of their overall income and the rest of their income has been severely impacted as a result of COVID-19. HMRC has still not adequately addressed this situation:
“In a small number of cases, for example where organisations are not primarily funded by the government and whose staff cannot be redeployed to assist with the coronavirus response, the scheme may be appropriate for some staff.”
If your employees are on Maternity Leave, contractual adoption pay, paternity pay or shared parental pay
Special rules apply and you should contact us for advice.
What if I need to make a furloughed employee redundant?
A furloughed employee can be made redundant while on furlough or immediately after. CJRS grant payments will cease when the redundancy occurs.
Calculating what you can claim
You will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage.
These remuneration elements should be included when working out the 80% due under the CJRS:
- Regular wages
- Variable PAYE wages
- Fees
- Compulsory bonuses
- Compulsory commissions
These remuneration elements are excluded:
- Discretionary bonuses
- Discretionary commission
- Tips
- Tronc shares
- Non-cash payments such as health insurance
- Use of a company vehicle.
At a minimum, employers must pay their employee the lower of 80% 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 under this scheme.
Employees whose pay varies
If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, you 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, you can claim for an average of their monthly earnings since they started work.
If the employee only started in March 2020, use a pro-rata for their earnings so far to claim.
Once you’ve worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim. You are strongly advised to speak with your payroll provider, if SRC-Time carry out your payroll function we will work this out for you, we have however a worked example by way of a guide at appendix A.
Auto enrolment Pension Contributions – only that required
No voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income, above the lower limit of qualifying earnings (which is £512 per month until 5th April and will be £520 per month from 6th April 2020 onwards) may be claimed.
National Living Wage/National Minimum Wage implications
Individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW) for the hours they are working.
Therefore, furloughed workers, who are not working, must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.
Implications for Apprentices
Apprentices can be furloughed in the same way as other employees and they can continue to train whilst furloughed.
However, you must pay your Apprentices at least the Apprenticeship Minimum Wage, National Living Wage or National Minimum Wage (AMW/NLW/NMW) as appropriate for all the time they spend training. This means you must cover any shortfall between the amount you can claim for their wages through this scheme and their appropriate minimum wage.
Income Tax and Corporation Tax Treatment of the Coronavirus Job Retention Grant
Payments received by a business under the scheme are made to offset these deductible revenue costs. They must therefore 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.
Application process
HMRC launched the claims portal on GOV.UK on 20 April 2020 and that the only way to make a claim is online . HMRC state that claims will be paid within 6 working days.
SRC-Time is one of the South East’s leading firms in advising employers of their payroll, pensions and staffing requirements. If you need help with furloughing staff our expert payroll team are here to help and can be contacted them on 01273 326 556 or you can drop us an email at info@src-time.co.uk (payroll@src-time.co.uk or speak with an account manager to get expert help.
APPENDIX ONE: SAMPLE CALCULATIONS
Abdul-Karim runs a small shop but his business is not going too well due to the Coronavirus. He decides to furlough Kwasi, one of his employee with effect from the end of March. Kwasi earnt £22,000 per annum from April 2019 to March 2020 and £20,000 in the previous year and he belongs to the Workplace pension scheme that Abdul-Karim set up. He also has a discretionary bonus which depends on the shop’s results. Last year this was £1,500.
Abdul-Karim will qualify for the following support under the scheme
Abdul-Karim will have to pay his employee 80% of their normal take home excluding bonuses and or commissions. Assuming pay date 31 March we have furloughed Kwasi from 1 April. The furlough rules entitle Kwasi’s to a net take home of 80% of £1,833.33 after tax, national insurance and pensions.
*In this example a standard tax coding has been assumed, 1250L, meaning entitlement to £12,500 of personal allowance
| Kwasi – Pay | Pre Covid-19 | Post Covi-19 furlough |
| Gross | £1,833.33 | £1,466.67 |
| Tax and national insurance | £291.72 | £174.52 |
| Employee pension | £52.86 | £38.19 |
| Net take home | £1,488.75 | £1,253.96 |
Abdul-Karim will have to pay the net pay out of existing business funds and settle any PAYE liability by the required due date (unless a time to pay arrangement is subsequently agreed with HMRC).
Once the online portal is up and running Abdul-Karim will make a claim for 80% of the furloughed funds inclusive of employer pension and national insurance.
He will receive back into his bank account £1,598.50. This will be recognised in his accounts and offset by the associated costs of payment to Kwasi.
Mike and David run a consulting company. For tax efficiency they take most of their remuneration as dividends, but also draw a small salary of £8,500. They have done this for the last three years. They do not intend to work in the current situation but will keep the business ticking over from their homes. They do not have a workplace pension scheme in place.
Mike and David will qualify for the following support under the scheme
Mike and David’s salary will continue to be paid by their consultancy company. They will receive 80% of their normal take home pay of £708.33. Taking a pay date of 31 March both Mike and David will be furloughed from 1 April. The furlough rules entitle them both to net take home of 80% of £708.33. At this level of income there is no tax or national insurance for the employee or employer. The directors have also opted not to run an auto-enrolment pension scheme.
*In this example a standard tax coding has been assumed, 1250L, meaning entitlement to £12,500 of personal allowance
| Mike / David | Pre Covid-19 | Post Covi-19 furlough |
| Gross | £708.33 | £566.66 |
| Tax and national insurance | £0.00 | £0.00 |
| Employee pension | £0.00 | £0.00 |
| Net take home | £708.33 | £566.66 |
Mike and David will have to pay the net pay salary out of existing business funds and apply for an 80% grant to cover the period of furlough.
The business will receive back into its bank account £1,133.32 to cover both directors. During the period of furlough the directors can carry out their fiduciary duties (such as keeping board minutes, completing returns etc) but cannot work to generate income in the business. The grant received will be recognised in the company accounts and offset by the associated cost of payment.
The directors can supplement their income by continuing to issue dividends from existing reserves or profit after tax. If there is no such reserves or funds they will have to seek alternative assistance from Universal Credits or Employer Payment Allowance. They will not qualify for Self-Employment Income Support Scheme (SEISS) as they are not self-employed, being directors of their own company.
Paul owns a paint warehouse and he has a helper Karen. Karen is on a zero-hours contract. In the last 3 years she has earned £8,000, £14,000 and £11,000. Paul must furlough Karen, Paul does not have a workplace pension in place.
Paul will qualify for the following support under the scheme
As Karen is on a zero-hours contract, we must follow the rule of 12 month review.
If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, you 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
Karen’s pay for the same month earning from previous year (assuming equal working hours per month last year) £1,166.67 (£14,000 / 12)
Her average monthly earnings from the 2019-20 tax year is £666.67 (£8,000 / 12)
The higher of the two figures is £1,166.67 therefore this is what the furlough amount will be paid on.
Assuming a furlough date of 1 April, Paul will have to pay Karen 80% of £1,166.67. The furlough rules entitle Karen to a net take home of 80% of £1,166.67 after tax and national insurance have been deducted.
*In this example a standard tax coding has been assumed, 1250L, meaning entitlement to £12,500 of personal allowance
| Karen – Pay | Pre Covid-19 | Post Covi-19 furlough |
| Gross | £1,166.67 | £933.33 |
| Tax and national insurance | £78.52 | £25.72 |
| Employee pension | £0.00 | £0.00 |
| Net take home | £1,088.15 | £907.61 |
Paul will have to pay the net pay out of existing business funds and settle any PAYE liability by the required due date (unless a time to pay arrangement is subsequently agreed with HMRC).
Once the online portal is up and running Paul will make a claim for 80% of the furloughed funds inclusive of employer national insurance.
He will receive back into his bank account £962.91 (£933.33+£29.58 Ers NIC). This will be recognised in his accounts and offset by the associated costs of payment to Karen.
