Further guidance was issued on the Job Retention Scheme since the portal opened for grants applications on 20th April 2020. Below is a summary of the key points but please feel free to contact us if you wish to discuss your businesses situation further.
Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis.
The scheme is opened as from 1st March 2020 and was due to end 31st May 2020, but this has been extended to the end of June 2020. Employers can use a portal to claim 80% of furloughed employees’ (those on a leave of absence) usual wage cost, up to £2,500 a month, plus the associated Employers National Insurance contribution and minimum automatic enrolment employer contributions on that wage.
Who can claim
UK employers that have created and started a PAYE payroll scheme on or before 19th March 2020 can claim, provided they:
- Have enrolled for PAYE online
- Have a UK bank account
- Are an organisation, such as a Business, Charity, Recruitment agency, Public authority, or are an individual who has nannies / carers and pay them through PAYE
Eligible employees must be on the payroll before or on 28th February 2020; or 19th March 2020 as long as HMRC were notified via Real Time Information (RTI) submission. The employee can be on any type of employment contract:
- Full-time and Part-time
- Agency contracts
- Flexible or zero-hour contracts
- Those made redundant since 28th February 2020 as long as they are rehired by their employer
- Foreign nationals
The employee cannot carry out any work during their period of leave for the organisation which would generate income or provide a service. If the employee is just on reduced hours or working for reduced pay, they will not be eligible for the scheme. The employee can work for another employer while on furlough for another but only if their employment contract allows them to.
An employee can carry out training whilst on leave as long as it does not generate revenue or provide services to the employer. If the training is requested by the employer the employee must be paid the National Minimum Wage which in most cases the £2,500 or 80% of their regular wage should cover. If not, the employer will be responsible in meeting the additional wage cost.
An employee can carry out volunteer work, again if it does not provide services to or generate revenue for the employer or connected organisations. Employees who are unable to work because they are shielding in line with public health guidance can be furloughed. Also, those with caring responsibilities are also eligible to be furloughed for example to care for someone who is shielding or children.
If your employee has more than one employer all employments are treated separately. Therefore, an employee can be furloughed in one job and continue working for another or be furloughed in both. The cap of £2,500 or 80% of their usual monthly wage applies to the employer.
Employers will need to discuss the situation with their staff and agree any necessary changes to the employment contract. The employer should agree with the employee that they are to be furloughed and communicate the agreement in writing (this can be via electronic communication such as email) and both parties should keep a copy of this communication. The employer does not have to make all their staff furloughed.
Furloughed employees will still maintain the same employee rights as they would do if they were working; this includes rights against unfair dismissal and redundancy. It has been highlighted that the grants cannot be used to substitute redundancy payments and that the full grant should be passed on to the employee net
of tax, employee NI and pension contributions that their pay would be normally subjected to.
The minimum period that an employee can be furloughed is three weeks and the maximum period is currently four months. When the employee returns to work you must remove them from the scheme, but they can be furloughed again but each instance must be for a minimum of three weeks.
There are various scenarios that might impact on the situation such as Statutory Sick Pay, employees already on unpaid leave or maternity. Please contact us if you would like further information in regards to these situations.
For each furloughed employee the employer can claim a grant of:
▪ 80% of the employees wages up to a maximum of £2,500 per month
▪ Employers National Insurance on the grant
▪ Minimum automatic enrolment employers pension contribution of 3% on qualifying earnings based on the grant. This is only claimable if the employer pays the whole amount claimed into a pension scheme for the employee as an employer contribution.
The grant is pro-rated if the employee is only furloughed for part of a pay period. Therefore, if the employee is furloughed for the minimum 3 weeks the maximum £2,500 will be restricted.
The 80% is calculated in different ways depending on the type and contents of the employment contract but
▪ 80% of the salary for a full-time/Part-time employee within the last pay period prior to 19th March 2020.
▪ If the employees pay varies you can claim the higher of (subject to the cap);
o Same month’s earnings in previous year
o Average monthly earnings for 2019/20 tax year
The pay may vary due to the employee being on a zero-hour/flexible contracts or due to contractual or discretionary payments.
You can claim for any regular payments you are obliged to pay your employees such as past overtime, fees and compulsory commission payments. Any payments that are discretionary bonuses/commission and non-cash payments should be excluded. Therefore, you will need to review the employees’ contract to see what can be included.
Benefits in kind and salary sacrifice should not be included to arrive at the salary figure to base the grant on.
To make the claim, the employer will need the following:
▪ Employer PAYE reference number
▪ Number of employees being furloughed
▪ Names and National Insurance numbers for all furloughed employees
▪ The unique taxpayers reference number (UTR) for the business; this will be either the Corporation Tax UTR for a company, Self-Assessment UTR for sole-trader or Partnership UTR.
▪ Start and end date of the claim period
▪ Amount claimed; this has to be for the minimum length of furloughing of 3 weeks
▪ Business bank details for the grant to be paid into
▪ Contact name and phone number
The amounts claimed after the initial claims should be based on the amounts in payroll either shortly before or after the payroll has been run. This will allow time to make a claim for the grant before paying out salary to the employees.
If your accountant is making the claim on your behalf and they already process your payroll you will need to ensure that they have details of the bank account you wish the grant monies to be paid into.
If you process your own payroll but wish your accountant to make the claim you will need to contact them to get the correct authority in place with HMRC.
The grants received by the business under this scheme should be classed as income within the accounts and are taxable but obviously the tax effect is reduced by the salary cost being paid out.
Job Retention Scheme – Directors
Due to directors being officers of the company they do not qualify for the Self-Employed Income Support Scheme. However, due to some directors receiving a salary from the company in some cases they can qualify for the Job Retention Scheme.
Due to the crisis many directors are not carrying out revenue activities as in theory the company has gone into ‘hibernation’ until it can start to trade again. It is on this basis that the company could make a claim under the job retention scheme but as this claim could be challenged it would be wise to keep note of the following evidence:
• Communication to customers and/or suppliers that the company is to halt trading
• Date that trading halted and day to day business activities ceased
• Communication to other key business connections/advisors that trading has halted
• How the profits of the company have been impacted by COVID-19
• The above should be documented in company records via board minutes
To qualify the director cannot perform any work that would be classed as generating commercial revenue or providing services to or on behalf of the company. Therefore, the director should not generate any income for the company nor try and diversify the company into new markets. The director can only carry out essential statutory duties; this in theory creates two contracts, one being a service contract for statutory activities and the other being an employment contract for revenue activities.
Due to many directors/shareholders receiving small salaries along with larger dividends the 80% grant will not support income completely but would assist cashflow to enable the director to still take a salary. The grant will still be based on 80% of the salary paid in February 2020 (or any pay run prior to the 19th March) up to the maximum of £2,500. The company could top up 80% salary paid out by the additional 20% if the company had the funds to do so.
Please feel free to contact us if you would like to discuss this scheme further or would like us to assist with the calculations and claims.
Further information on the Job Retention scheme can be found via the link to the GOV.UK pages on the scheme https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme
The above is to provide a summary of the key points of the Job Retention Scheme with the aim of providing the reader with the basic intention of the scheme and amount of grant that could be claimed. Not every situation is covered in the above therefore please seek further advice prior to making a claim.