Coronavirus: Job Retention Scheme

30th March 2020

The UK Government’s job retention scheme is designed to support employers who are struggling during the coronavirus epidemic and help them avoid making redundancies. Under the scheme, it will reimburse employers up to 80% of wages of employees who would otherwise have been laid off. Read on to find out how it works.

Coronavirus job retention scheme

How does the coronavirus job retention scheme work?

Under the scheme, workers are temporarily “furloughed” as an alternative to being laid off. This means that employees are temporarily asked to stop working for the company but are not made redundant.

The employer is then eligible to claim back 80% of the costs incurred during the period in which workers are furloughed via an online HMRC portal.

The scheme is currently in place to cover wages for three months from 1 March 2020, however this period may be extended at a later date depending on the timeline of the epidemic.

What can be claimed?

Employers can claim up to 80% of an employee’s normal wages up to £2,500 per month for the period during which they are furloughed. They are also eligible to claim any employers NI suffered as well as the minimum employer contribution required under pensions auto enrolment.

For most employees, normal monthly wages will be based on the individual’s base salary as at 28 February 2020. Bonuses and commissions are excluded.

Under the scheme, the employer is not obligated to make up the additional 20% of the employees pay, although care should be taken to ensure that non-payment is permitted by virtue of the contract of employment.

For employees who have variable income – e.g. seasonal workers – the amount is calculated as the higher of:

  • Their average monthly earnings during the 2019-20 tax year
  • Their earnings for the same month of 2019

If employees have worked for the company for less than one year and their pay varies, their average wage since their employment commenced is used.

The employer can choose to meet the additional 20% of the worker’s pay at their discretion and this will not prevent a claim.

Who is eligible for the coronavirus job retention scheme?

All UK-based employers with a PAYE scheme in place are eligible to access the job retention scheme, including the public sector, local authorities and charities.

Any employee who was on the payroll as of 28 February 2020 can be paid under the scheme, including employees who were originally made redundant or laid off as a result of the coronavirus outbreak.

The scheme extends to all full and part time workers, including agency staff paid via payroll and staff on zero hours contracts. Directors’ salaries are also covered, however this does not include any dividends.

For sole director companies, the director can claim to be furloughed.  However, by doing so, they are only permitted to carry out their legally required duties, for example filing VAT returns and statutory accounts. They are not allowed to continue with any normal duties  including contacting clients or suppliers.

What are the tax implications of accessing the job retention scheme?

For the employer, the payments will be treated as grant income. As such they will be taxable income for the employer, however a deduction will be available for payments to employees, resulting in a nil position for tax purposes.

The payments will be treated in the same way as employment income in the hands of the employee. They will be subject to Income Tax and Class 1 NIC through PAYE in the same way as their regular wages.

What is a furloughed worker?

“Furloughed” is the term used to describe any worker who has been asked to stop working for their employer on a temporary basis due to exceptional circumstances on the part of the employer.

It is important to note that furloughed workers have not been made redundant or placed on unpaid leave and are still classed as employees of the company.

Employees must not carry out any work of any description for the employer while furloughed, including answering calls or emails, however they can still undertake training related to their position. If training is mandatory they must be paid at least the National Minimum Wage for their time, even if this exceeds the 80% being covered by the job retention scheme.

Employees are free to undertake voluntary work or work for other employers while furloughed – however voluntary work must not contribute to the profitability of the employer who has furloughed them.

There is no requirement to furlough the entirety of the workforce and employers can furlough select employees while other employees continue to work, however each employee must be furloughed for a minimum period of three continuous weeks to be eligible for support.

The Government has confirmed that employees who were made redundant after 28 February 2020 can be rehired and immediately furloughed.

Employers must notify employees of the change to their working status immediately if they intend to furlough them.

How to make a claim

To claim under the coronavirus job retention scheme, the employer initially needs to set up each affected employee as a furloughed worker on their payroll system and pay them as normal.

The employer will then send details of each employee’s normal earnings to HMRC via an online portal, which is expected to go live in late April.

Once the claim has been processed by HMRC, payments will be issued to the employer’s bank account.

If any temporary cash flow problems result, the business can claim a Coronavirus Business Continuity Loan in the interim.

Further support available to businesses impacted by coronavirus

Information correct at time of publication, 30 March 2020.

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