More guidance has been published on the coronavirus job retention scheme (CJRS), although there are still some grey areas. Kate Upcraft summarises what we know so far.

30th Mar 2020

Source Accounting Web

Who can claim?

All employers can benefit from the scheme, even owner-managed businesses.

The government wants the support to be as inclusive as possible. There is no conditionality related to having sufficient funds which for example have been applied to the business interruption loans.

Owner-managed businesses can make a claim from the CJRS, effectively they will be furloughing themselves and the understanding is that they do no income generating work for their business but can continue to run the business from a statutory perspective, for example preparing their accounts and returns.

The following employers would therefore qualify:

• Businesses
• Charities and not-for-profit organisations
• Parents employing nannies
• Public sector organisations, although the government expects that most of them will still have the majority of employees working in frontline services.

Which employees?

To reclaim a CJRS grant from HMRC, the employer has to designate employees as furloughed (essentially a period of paid leave when they cannot work) other terms and conditions of employment continue unless these have been varied too. 

Whilst furloughed staff can’t do any work for the employer that furloughed them, they can undertake training, work for other employers, work on a self-employed basis or as a volunteer.

The guidance refers to employees (and occasionally workers) and I take this to mean that the following individuals are covered:

• Employees (including zero hours and fixed term) with a start date of 28 February or earlier, even if they were added to a March payroll retrospectively because they missed the February payroll cut-off date
• Apprentices
• Temps on PAYE at a recruitment agency

The following individuals will not be covered:

• Deemed employees – those subject to the off-payroll rules in the public sector. These individuals would have to claim based on the non-taxable salary extracted from their PSC. This is not entirely clear in the guidance but as they are not employees of the public sector engager they appear to fall outside the CJRS from the engagers perspective.
• Workers engaged under a contract for services, ie sole traders being paid gross via an invoice. These individuals will have to claim under the self-employed support scheme. 

A business may need to furlough all employees if it has effectively closed down, as in hospitality or non-food retail. However, it can choose to furlough a group of employees, whilst key workers continue to work, or to rotate groups between furloughing and working.

The scheme was introduced on 1 March so changes to March payrolls can be made retrospectively to change employees’ status to ‘furloughed’ and reinstate those who had already been made redundant due to COVID-19. However, the PAYE scheme must have been in existence on 28 February 2020.

How to furlough

The CJRS doesn’t override employment law. The employer must mutually agree with an employee, ideally in writing as it’s a contract change, that the employer is designating them as furloughed (there is no work for them due to COVID-19) and what the employer is planning to pay them whilst furloughed.

Some businesses may choose to continue to pay full salary even though they can only reclaim 80% up to the cap. Other employers may only be able to pay 80% of regular salary or even less than that, until the CJRS grant arrives.

An employee can be furloughed for a minimum of three weeks at a time and for a maximum of three months from 1 March, although the government might extend the scheme. The individual could remain furloughed even if the CJRS is not extended, but then the employer would not have any grant funding to cover their wages.

How much?

The grant from the scheme will be the lower of £2,500 per month per employee or 80% of gross regular wages plus employer NIC on the grant figure plus 3% employer pension contributions on the grant figure using the qualifying earnings threshold (see example). The apprenticeship levy can’t be reclaimed.

When calculating claim values for directors of owner-managed companies you can only consider the salary that has been subject to PAYE, not any dividends paid to those directors.

Running the payroll

It is important to distinguish between the CJRS grant funding and normal payroll operations which continue, other than that employees won’t necessarily be receiving their former contractual wages.

To decide how much to pay, employers will need to calculate how much the CJRS grant will cover. The £2,500 cap refers to regular wages as at 28 February, excluding bonuses, fees and commission (it’s not clear if cash allowances and overtime should also be excluded).

For an individual with variable pay ie 28 February was not an indicative week or month, their average earnings over 2019/20 or the period of employment during that year can be used.

The figure that is agreed with the employee to be paid in the period of furlough will treated as normal earnings, subject to all statutory and voluntary deductions, reported under RTI with the remittances paid over to HMRC by the normal deadline.

What is paid through the payroll will not necessarily equal what can be reclaimed from HMRC.

Example   Arthur has normal monthly gross pay of £3,500 and the employer agrees to continue to pay this. Arthur is also a member of a pension scheme for which his employer pays 9% contributions on all basic pay, which amounts to £315 per month. The employers’ class 1 NIC due on Arthur’s gross pay is £383.78. Arthur’s employer can reclaim from the CJRS: £2,500 plus £245.78 NIC plus £59.64 pension contributions (£2,500 – £512 qualifying earnings threshold x 3%). This example uses the 2019/20 NIC thresholds, which will change on 6 April 2020.

The claim

A standalone portal will be introduced, probably around 21 April, to allow furlough grants to be reclaimed. The professional accountancy bodies have requested that tax agents be given access to this portal as well as employers.

As a bulk amount will be claimed for a group of employees you need to consider how this will be reconciled once it is paid into the company’s bank account (it needs to be a UK account). It appears it will be a simplistic request just to identify the business, grant value, the number of employees, and the period of furlough.

HMRC will reserve the right to investigate claims and cross-reference them to RTI data.