The Coronavirus Job Retention Scheme is a temporary scheme open to all UK employers for at least three months starting from 1 March 2020. It is expected that the scheme will be up and running by the end of April. It is designed to support employers whose operations have been severely affected by coronavirus (COVID-19).
Official guidance has now been released which covers the technicalities of the scheme, as well as the claim process and eligibility criteria.
Employers can use a portal to claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. Employers can use this scheme anytime during this period.
The scheme is open to all UK employers that had created and started a PAYE payroll scheme on 28 February 2020.
Who is eligible for the scheme?
All UK businesses are eligible for the scheme including charities, recruitment agencies and public authorities.
To satisfy the criteria, the business must have created and started a PAYE payroll scheme before 28 February 2020 and have an operational UK bank account.
Furloughed employees must have been on the business’ PAYE payroll on 28 February and can be on any type of contract including:
- Full time employees
- Part time employees
- Agency contract employees
- Flexible or zero hours contract employees
Job retention scheme also covers employees who have been made redundant since 28 February 2020, if they are rehired by the employer.
In order to fulfil the eligibility criteria, when on furlough the employee cannot undertake any for or on behalf of the business. Normal income tax and other tax deductions will apply to the employee’s wages during furlough period.
If an employee is working on reduced hours or for reduced pay, they will not be eligible for the Job Retention Scheme.
Any changes to the employment contract has to be discussed with the employee; for any decision in relation to the furlough offers made to employees, normal equality and discrimination laws will apply.
If your employee is on unpaid leave
Employees who are self isolating or are on sick leave will receive SSP, however they can be furloughed after the sickness period ends.
If your employee has more than one job
Employees can be furloughed from each of their employments, with the £2500 cap separately applying to each employer.
Volunteer work or training
A furloughed employee can take part in volunteer work or training, if it does not provide services to or generate revenue for, or on behalf of your business.
However, if employees are asked to complete online training courses during their furlough period, pay of at least NLW/NMW for the time spent training must be applied, even if this is more than the 80% of their wage that will be subsidised.
Maternity leave, adoption pay, paternity pay or shared parental pay
Individuals who are on or plan to take Maternity Leave must take at least 2 weeks off work (4 weeks if they work in a factory or workshop) immediately following the birth of their baby. This is a health and safety requirement. In practice, most women start their Maternity Leave before they give birth.
For Statutory Maternity Pay (SMP) or Maternity Allowance, the normal rules apply if an employee within your business is eligible, and they are entitled to claim up to 39 weeks of statutory pay or allowance.
Employees who qualify for SMP, will still be eligible for 90% of their average weekly earnings in the first 6 weeks, followed by 33 weeks of pay paid at 90% of their average weekly earnings or the statutory flat rate (whichever is lower). The statutory flat rate is currently £148.68 a week, rising to £151.20 a week from April 2020.
If your business offers enhanced (earnings related) contractual pay to women on Maternity Leave, this is included as wage costs that can be claimed through the scheme.
The same principles apply where your employee qualifies for contractual adoption, paternity or shared parental pay.
Working out the Job Retention Scheme Claim
Through this scheme, an employer has to make a claim for the business’ wage cost.
Grant will be received from HMRC to cover the lower of £2,500 or 80% of an employees regular wage, adding the minimum automatic enrolment employer pension contributions on the subsidised wage and all the associated employer national insurance contributions.
Guidance for the latter will be introduced by HMRC before the scheme goes live.
Full time and part time employees
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%. Excluding fees, commission and bonuses.
Employees whose pay varies
If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, a claim can be made for the higher of:
- the same month’s earning from the previous year
- average monthly earnings from the 2019-20 tax year
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, a pro-rata for their earnings should be used to claim.
Once it has been worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.
Employer National Insurance and Pension Contributions
All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees.
Employers can choose to provide top-up salary in addition to the grant. Employer National Insurance Contributions and automatic enrolment contribution on any additional top-up salary will not be funded through this scheme.
Information needed to make a claim
To make a claim for the scheme, the following will be required:
- employer ePAYE reference number
- number of employees being furloughed
- claim period (start and end dates)
- amount claimed
- business’ bank account number and sort code
- contact name
- phone number
Claims should only be submitted for periods of at least 3 week, which is the minimum period of time an employee can be furloughed for. Currently, the claims can be backdated to the 1 March.
Claims will be reviewed by HMRC, with those successful claims eligible for the grant, receiving a payment via BACS payment into the UK bank account provided in the application.
Tax Treatment of the Corona Virus Retention Grant
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.
