Tax: Job Retention Scheme

The online HMRC portal to make claims under the ’Coronavirus Job Retention Scheme’ is now online. Smith & Williamson can process claims on your behalf or assist with claims.

Many employers will already be familiar with the basic operation of the scheme. Employers can claim back 80% of the salary of employees who are temporarily ‘furloughed’. Broadly, this means that the employer will ask affected employees to cease their duties for a temporary period, as there is no work, but retain them as employees. The amount that can be claimed per employee is 80% of their salary, capped at £2,500 per month, plus employer’s NICs and minimum auto-enrolment employer pension contributions on that sum.

Which employers can participate?

The scheme is available to all employers who had a PAYE payroll scheme in operation on or before 19 March, have a UK bank account and are enrolled for PAYE online.

The Government’s guidance does not include any other qualifying conditions for the employer, although it states that the scheme is “designed to help employers whose operations have been severely affected by coronavirus (COVID-19) to retain their employees and protect the UK economy.” It appears that cash-rich businesses which have not been ‘severely’ affected can technically qualify, although it may not be the Government’s intention for such businesses to claim under the scheme. Equally, it is not the Government’s intention for employers to claim for the salary costs of employees for the duration of the scheme if there is no prospect of the employees being retained afterwards. It is accepted in the guidance that redundancies may be necessary after the furlough period, but it may not be appropriate to claim where there is no intention at all to attempt to avoid redundancies.

The Government expects that not many public sector organisations will use the scheme, as the majority of public sector employees will either continue to provide services or contribute to the coronavirus response.

Which employees can be furloughed?

Furloughed employees must have been on the employer’s PAYE payroll on or before 19 March 2020 and must have been notified on an RTI submission on or before 19 March 2020. They must be furloughed for a minimum of three weeks to qualify under the scheme.

Employees who continue to work on reduced hours or for reduced pay are not covered. The scheme only applies where employees entirely cease providing services to, or generating revenue for, the employer. Employees can take part in volunteer work or training. Where an employee is required to complete online training courses while they are furloughed, they must be paid at least the national living wage/ national minimum wage for doing so.

The scheme covers part-time employees, employees on flexible/ zero-hour contracts and agency workers. It also covers employees who were made redundant but are then rehired. Only workers who are paid through PAYE can qualify; other workers may need to rely on the separate scheme for the self-employed.

Employees who are ‘shielding’ from COVID-19 in line with public health guidance, or on long-term sick leave, can be placed on furlough.

If office holders (including directors), salaried members of Limited Liability Partnerships, agency workers or workers are paid via PAYE then you may be able to claim the grant for these individuals as long as they are furloughed.

The normal rules for maternity and other forms of parental leave and pay apply and the employees will still have the same employment rights. It is possible to claim through the scheme for enhanced contractual pay for those who qualify for maternity and other forms of parental pay.

What can be claimed under the scheme?

The amount that can be claimed per employee is:

• the lower of 80% of their regular salary and £2,500 per month; and
• employer’s NICs and minimum auto-enrolment employer pension contributions on that sum.

Employees’ salary can be topped up to 100% but it will not be possible to claim back any top-up from HMRC.

If an employee has variable pay then it is possible to claim the higher of the same month’s earnings from the previous year or their average monthly earnings for the 2019-20 tax year. If they have been employed less than 12 months you can use their average monthly earnings since they started employment.

It is possible to claim for any regular payments made to employees. This includes wages, past overtime, fees and compulsory commission payments. Discretionary bonus, commission payments and non-cash payments should be excluded.

Furloughed employees must continue to make employee auto-enrolment pension contributions, unless they have chosen to opt-out or to cease saving into a workplace pension scheme. It is not possible to claim for any additional national insurance or pension contributions on any amounts you decide to top up over the 80% for the employee. It is not possible to claim for any pension contributions above the minimum employer limits.

All the grant received to cover an employee’s subsidised furlough pay must be paid to employees in the form of money. No part of the grant should be netted off to pay for the provision of benefits or a salary sacrifice scheme.

The Apprenticeship Levy and Student Loans should continue to be paid as usual.

Refunds will be backdated to 1 March 2020.

What is the process for furloughing employees?

Employers will first need to decide who to furlough. The decision will need to be taken in accordance with employment law. There may be an obligation on the employer to consult with employees where more than 20 employees are affected.

Employers will also need to decide what to pay furloughed employees. Some employers may only be willing or able to pay the amount that the Government will refund. Reducing an employee’s salary however may require their consent, unless their employment contract allows otherwise. Employers who are very badly affected by the coronavirus may need to offer employees a choice between being furloughed on reduced pay, and redundancy. The Government’s guidance states that “employers should discuss with their staff and make any changes to the employment contract by agreement.”

If employees continue to receive full pay, it may be possible to furlough them without their consent.
Employers should write to affected employees confirming that they have been furloughed and keep a record of this communication for at least five years.

Employees must be furloughed for a minimum of three consecutive weeks in order to claim. Employees can be furloughed multiple times, though this must be for a minimum of three consecutive weeks in each instance.

What is the process for claiming from HMRC?

Claims are made through an online portal. The following information will need to be submitted:

• employer PAYE reference number
• the number of employees being furloughed and their names/NI number
• payroll/works number for the furloughed employees
• a Self-Assessment Unique Taxpayer Reference, Corporation Tax Unique Taxpayer Reference or Company Registration Number
• the claim period (start and end date)
• amount claimed (per the minimum length of furloughing of 3 consecutive weeks)
• bank account number and sort code; and
• contact name and phone number for the employer

All records and calculations in respect of your claims should be retained, as HMRC will retain the right to audit all aspects of your claim retrospectively. All valid claims will be paid via BACS payment to the employer’s UK bank account.

Employers who have fewer than 100 furloughed staff will need to enter details of each employee they are claiming for directly into the system. Employers who have 100 or more furloughed staff will be asked to upload a file with the information instead.

Authorised agents, other than ‘file only’ agents, will be able to make a claim on behalf of employers.

What is the tax treatment of the subsidy?

The amount claimed by a business must be included as taxable income in calculating its corporation tax liability. Individuals with employees that are not employed as part of a business (such as nannies) are not taxable on the amounts claimed.

The Government’s guidance can be found here.

Government and tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate advice from their financial adviser before making financial decisions.

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DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.