Coronavirus Job Retention Scheme

27 March 2020

COVID-19

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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.

Eligibility

All UK businesses are eligible – large or small, charitable or not for profit.

Details of the scheme

You will need to designate affected employees as ‘furloughed workers’ (i.e. granted a leave of absence) and notify your employees of this change in writing. Note that changing the status of employees remains subject to existing employment law.
HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. Examples of how we understand this will operate are included further on in this guidance.
This reimbursement takes the form of a grant paid to the employer, i.e. it is not a loan and does not need to be repaid.
Furloughed workers cannot work for the employer during the period of furlough (and the period of furlough must last for at least three weeks). It is not possible to include employees who are working on reduced hours or for reduced pay.
The scheme is available for employees on the payroll at 28 February 2020.
The employees can be full-time or part-time and the scheme also extends to employees on agency contracts and those working on flexible or zero-hours contracts.
You will need to submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required).
The scheme aims to be operational by the end of April and is backdated to 1 March. It will operate for at least three months. Employers will need to continue to pay affected employees through the payroll and report payments to HMRC in the ordinary way with the deduction of PAYE.
Businesses will need to consider the cash-flow implications for both their March and possible April payrolls. If you need support to model you cash-flow then please contact us. The Coronavirus Business Interruption Loan Scheme could be used as a means of funding.
Further information can be found here.

The maximum grant

For each employee, the maximum grant we be calculated as the lower of:

80% of ‘an employee’s regular wage’ and
£2,500 per month

In addition, the grant will cover the associated employers’ national insurance contributions (NICs) on the above amount as well as the minimum automatic employer pension contributions on that wage. Fees, commissions and bonuses cannot be included.

Taken together, the maximum monthly grant per employee is £2,804 (£2,500 + £245 of NICs + £59 pension).

Example 1

Mr A is employed by X Ltd with an annual salary of £24,000, i.e. £2,000 per month. He has opted out of auto-enrolment.
Each month, Mr A currently receives net pay of £1,655 which is after deducting PAYE of £191 and employee’s NIC of £154. On this salary X Ltd pays employers’ NIC of £177.
The available grant is the lower of: 80% of £2,000 (£1,600), and £2,500 plus the Employer’s NIC. Therefore X Ltd can claim a grant of £1,777 (£1,600 plus £177 NICs).
The net amount of cash required by X Ltd to furlough Mr A if maintaining his existing salary is £400 per month (£2,000 + £177 - £1,777).

Example 2

Mr B is employed by X Ltd with an annual salary of £42,000, i.e. £3,500 per month. He has opted out of auto-enrolment.
Each month, Mr A currently receives net pay of £2,675 which is after deducting PAYE of £492 and employee’s NIC of £333. On this salary X Ltd pays employers’ NIC of £383.
The available grant is the lower of: 80% of £3,500 (£2,800), and £2,500 plus the Employer’s NIC. Therefore X Ltd can claim a grant of £2,745 (£2,500 plus £245 NICs).
The net amount of cash required by X Ltd to furlough Mr A if maintaining his existing salary is £1,138 per month (£3,500 + £383 - £2,745).

Note: Examples sourced from ICAEW published guidance on 26 March. This represents the ICAEWs understanding of how the scheme will work and is not to be relied upon as advice until details are confirmed by HMRC.

Practical questions and answers

Q. Do I actually have to “mothball” the staff to apply or can they continue to work part-time?

Employees cannot work part-time and must be furloughed for a minimum of three weeks. When deciding who to furlough employers need to be mindful of equality and discrimination laws. Employees on unpaid leave cannot be furloughed unless they were placed on unpaid leave after 28 February.

Q. Do I have to pay the additional 20%?

The guidance to employees says that “your employer may choose to pay the difference between this payment and your salary, but does not have to”.
However it is important to appreciate that this subject to existing employment law and, depending on the employment contract, may be subject to negotiation. Some form of consultation is advisable although in practice most employees will accept a 20% reduction if the alternative is being laid off.

Q. My employees’ pay varies month to month, what can I claim?

The general rule is that if the employee has been employed for a full twelve months prior to the claim, you can claim for the higher of either: the same month’s earnings from the previous year, or the average monthly earnings from the 2019/20 tax year. Further provisions exist for employers who have been employed for less than a year.

Q. Is the grant taxable income of my business?

Grants received are taxable business income but in practice will simply off set deductible revenue employment costs.