Full details of the Coronavirus scheme have now been published, the highlights of which are set out below. Links to the full HMRC guidance are at the bottom of this article.
The template letters previously published on this site have been updated to take account of the new guidance. The previous versions are still ok, but some of the narrative about assumptions pending published guidance is no longer necessary, so has been removed.
The grant under the scheme has been extended to include employers national insurance and employers pension contribution which will be on top of the grant for 80% of the employee’s usual gross pay. The gross pay element remains capped at £2,500 a month.
So for employees earning above £37,500 pay them a minimum of £2,500, for employees earning less than £37,500 pay them a minimum of 80% of their usual gross monthly pay. Pay for the purposes of the scheme excludes commission and bonuses. You can of course pay more than the 80% if you wish.
HMRC’s new guidance set out below now provides clarity as to how long an employee must be furloughed, how to calculate the grant for employees with variable pay, how to deal with an employee with another job and also brings into scope agency workers and those on zero-hours contracts.
If you are already using the scheme or intend to do so, then I strongly recommend that you carefully read all of HMRC’s guidance below and consult with your professional advisers if you are unsure about how it applies to you.
Highlights of the recently published guidance are:
- The online service to claim is not available yet but it is expected by the end of April.
- The scheme will run for at least three months starting from 1 March 2020.
- The scheme is to support employers whose operations have been severely affected by coronavirus.
- Employers can claim for 80% of furloughed employees’ usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer contributions.
- Furloughed employees must be furloughed for a minimum of 3 weeks, if they then return to work they may be furloughed again if necessary, but the new period must again be for a minimum of 3 weeks.
- Furloughed employees must have been on the employer’s PAYE payroll on 28 February 2020.
- Covers full-time employees, part-time employees, employees on agency contracts or employees on flexible or zero-hour contracts.
- Also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.
- Whilst on furlough, an employee can not undertake work for or on behalf of the employer. They can work for a different employer or volunteer.
- An employee who is working, but on reduced hours, or for reduced pay is not be eligible for this scheme. They have to be fully furloughed and not working for the employer.
- Employers will need to agree any changes to the employment contract with their employees voluntarily. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.
- Employers must write to their employee confirming that they have been furloughed and keep a record of this communication.
- Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme.
- Employers do not need to place all employees on furlough.
- If an employee is on sick leave or self-isolating they should get Statutory Sick Pay, they are not eligible for this scheme whilst on sick or self isolating. But can be furloughed after this.
- Employees who are shielding in line with public health guidance can be placed on furlough.
- If an 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.
- Employer 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. Fees, commission and bonuses should not be included.
- 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.
- For full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. Fees, commission and bonuses should not be included.
- For employees whose pay varies you can claim for the higher of either; the same month’s earning from the previous year or the average monthly earnings from the 2019-20 tax year to February 2020. 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 February 2020, use a pro-rata for their earnings so far to claim.
- The National Minimum Wage only applies to employees who are working, furloughed employers are not working so it does apply to them. So if 80% of their salary is less than the NMW this is acceptable.
- HMRC retain the right to retrospectively audit all aspects of a claim.
- Employers should make their claim in accordance with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll.
- Employers must pay the employee all the grant you receive for their gross pay, no fees can be charged from the money that is granted. You can choose to top up the employee’s salary, but you do not have to.
- When the government ends the scheme, you must make a decision, depending on your circumstances, as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy).
- Employees that have been furloughed have the same rights as they did previously. That includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.
- Once the scheme has been closed by the government, HMRC will continue to process remaining claims before terminating the scheme.
- Wages of furloughed employees will be subject to Income Tax and National Insurance as usual. Employees will also pay automatic enrolment contributions on qualifying earnings, unless they have chosen to opt-out or to cease saving into a workplace pension scheme.
- Employers 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.
- 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.
This briefing is for guidance purposes only. Mackenzies Accountants Ltd and the author accept no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommend that appropriate professional advice be taken having regard to your own particular circumstances.
Mackenzies Chartered Accountants
1 Langley Court, Pyle Street, Newport, Isle of Wight, PO30 1LA
Telephone 01983 528139