The government guidance has been continuously changing and this article is therefore inevitably a general exposition of key features of the scheme and specific advice should be sought in relation to the furloughing of employees.
The Coronavirus Job Retention Scheme (“CJRS”) is a government measure which provides grants to employers to encourage the retention of staff. The grant is to cover employment costs whilst the employee is temporarily placed on furlough leave.
The first payouts under the scheme have now been made and in spite of early difficulties with the portal it now appears to be working well.
Below we have summarised the scheme.
What is furlough leave?
Furlough is where an employer (of any size) in the UK has no work for an employee and temporarily suspends their employment for a specified period of time.
Where an employer cannot maintain its current workforce because its operations have been severely impacted by COVID-19, an employer can furlough its employees and apply to HMRC for a grant of:
a. usual monthly wage costs up to £2,500 a month; plus
b. the associated Employer National Insurance contributions; and
c. the minimum automatic enrolment employer pension contributions on that wage
During the period of furlough leave the employee cannot provide services to or generate revenue for their employer or any linked or associated organisation. They can however volunteer for the NHS without affecting their furlough pay.
Who is eligible?
Employees/workers (including foreign nationals) who were on an employer’s PAYE payroll on or before 19 March 2020 with any type of contract including:
a. full-time employees
b. part-time employees
c. employees on agency contracts
d. employees/ workers on flexible or zero-hour contracts
e. apprentices and trainees
f. company directors; and
g. limb (b) workers.
The CJRS also covers employees who were made redundant on or after 28 February 2020, if rehired by the employer.
To make a claim, you must:
be operating a PAYE payroll scheme on 19 March 2020
have a UK bank account • be enrolled for PAYE online; and
be eligible to apply for the grant
How do I select employees?
If you are unable to place your entire workforce on furlough leave as critical business functions need to carry on, consider the business’s needs and which roles are critical to keep the business functioning.
When making decisions in relation to the process, including deciding who to offer furlough to, discrimination laws will apply in the usual way.
How do I furlough the selected employees?
Seek the employee’s written agreement to place them on furlough leave and to cease all work. This may mean that many employees who have already been furloughed may not fall within the meaning of the CJRS.
It is compulsory that employers confirm in writing to the employee that they have been furloughed.
How much can I claim?
The grant from HMRC will cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus (not including) the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage.
This gives a maximum cap of £2,500 + £245 (Employers’ National Insurance Contribution) + £59 (auto- enrolled employer pension contribution) = £2,804 of the total possible grant that can be applied for per employee per month.
At a minimum, you must pay employees the lower of 80% of their regular wage or £2,500 per month. You can also choose to top up an employee’s salary beyond this but you are not obliged to do so under the CJRS.
How do I make a claim under the CJRS?
To make a claim you need:
your employer PAYE reference number
the number of employees being furloughed
National Insurance Numbers for the employees being furloughed
names of the employees furloughed
the payroll/work number for the employees being furloughed
Self-Assessment Unique Taxpayer Reference or Corporation Tax Unique Taxpayer Reference or Company Registration Number
the claim period (start and end date)
the amount claimed (per the minimum length of furloughing of 3 consecutive weeks)
your bank account number and sort code and
contact name and phone number
The claim for wage costs is to be made through a HMRC online portal. Once HMRC has received a claim for the grant, it will pay eligible claims via BACS payment to a UK bank account.
You must continue to pay furloughed employees and should not wait until the grant is paid to you unless, pursuant to the furlough agreement, the employee has agreed to be paid when you are paid.
Claims can be backdated to 1st March 2020 if the employee was not undertaking any duties for you at that time.
What is the position in respect of Income tax and National Insurance Contributions and Auto-Enrolment?
You will be liable to pay Employer National Insurance contributions on wages paid, as well as automatic enrolment contributions on qualifying earnings unless an employee has opted out or has ceased saving into a workplace pension scheme. These will be reimbursed by the government in addition to wages (mentioned above).
Employer National Insurance Contributions and automatic enrolment contributions on any additional top-up salary (if the employee has not agreed to a salary reduction) will not be funded through the CJRS. Nor will any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income above the lower limit of qualifying earnings (which is £520 per month from 6 April 2020 onwards).
Future Enforcement by HMRC
Most businesses having furloughed their employees will now need to take great care to ensure that they keep the appropriate written records for at least 5 years. This will include all the furlough agreements entered into, emails passing between the employer and employee as well as all payment records.
HMRC have indicated that they will apply a ‘flexible’ approach to the enforcement of the CJRS, however, there has been a considerable amount of debate amongst employment lawyers about how it is intended to operate.
The HMRC guidance as published on their website has been updated at least half a dozen times over a very short period of time (with lawyers feverishly studying the repeated changes) and the wording of the HMRC Direction made under the powers granted by S. 76 of the Coronavirus Act of 2020, which is the definitive legislation governing the CJRS, differs in its language and meaning to that set out in the published guidance.
In the years to come HMRC will, on behalf of government, be under considerable pressure to maximise the revenues that are collected to plug the enormous hole being created in the public finances by the current crisis. HMRC will as part of its PAYE and other inspection regimes start to check that employees on furlough leave have not actually been working (indeed HMRC have urged employees asked to work to ‘shop’ their employers to them).
HMRC will also look carefully at whether employers have complied with the technical aspects of the CJRS rules. It is with this aspect of enforcement that HMRC’s ‘flexible interpretation’ of the rules will be tested.
Clearly there is plenty of scope for argument as employers will have complied with slightly differing guidance published over time and how this will be interpreted in the light of the HMRC Direction remains to be seen.
We would strongly urge employers when challenged by HMRC in relation to their actions in implementing the CJRS to take appropriate and detailed legal advice before responding as there will be considerable sums at stake not to mention any attendant penalties, costs and interest which HMRC may seek to impose.
