Information about furloughed employees' scheme and how it will work in practice
Credit: As supplied by Jones Harris accountants, BADN's independent auditors
HMRC has published details of furloughed employees’ scheme and how it will work in practice. While most people are now aware of the Coronavirus Job Retention Scheme (CJRS) details are sparse.
HMRC have confirmed that the CJRS will be in place for at least three months from 1 March 2020.
HMRC will establish an online portal which we understand through which employers will be able to reclaim wage costs plus the employer's NI contributions and the minimum automatic enrolment employer pension contributions on that wage. Our understanding is that the portal will be ready in April.
The scheme will be open to all UK employers, including charities, recruitment agencies and public authorities, so long as they have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.
As to employee eligibility, the HMRC guidance states that the CJRS will cover:
- Employees who have been on the payroll since 28 February 2020 on any type of contract, including full-time and part-time employees
- Employees on agency contracts
- Employees on flexible or zero-hour contracts
- Significantly, employees who have been made redundant since 28 February can be furloughed if they are rehired.
An employee is considered furloughed for the purpose of this scheme only if he or she does no work for the employer. The scheme therefore does not cover the wages of employees whose hours are reduced.
The guidance recommends that employers discuss furloughing with their staff and make any changes to the employment contract by agreement. Employers should then write to their employees confirming that they have been furloughed and keep a record of this communication.
During the period of furlough, the employer should pay the employee at least the lower of 80% of salary or £2,500.
The guidance notes that the employer may choose to top up wages to 100% but is not obliged to do so.
For full-time and part-time salaried employees, the employee's actual salary, before tax, as at 28 February 2020 should be used to calculate the 80%.
The guidance notes that fees, commission and bonuses should not be included.
As for employees whose pay varies, in the case of employees who have been employed for at least a year, the employer will be able to claim for the higher of the employee's earnings in the same month the previous year or the employee's average monthly earnings in the 2019/20 tax year.
In the case of an employee who has been employed for less than a year, the employer will be able to claim for an average of the employee's monthly earnings since he or she started work.
In the case of an employee who only started in February 2020, the employer will be required to pro-rate the employee's earnings so far.
The guidance also covers the application of the national minimum wage (NMW) to furloughed employees. It states that, since employees are only entitled to the NMW while doing work, furloughed employees, who are not working, must be paid at the 80% rate (or £2,500) even if, based on their usual working hours, this would be below the applicable rate of NMW. However, the guidance goes on to state that if employees are required to, for example, complete online training courses while they are furloughed, then they must be paid at least the NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
Sadly, there are unscrupulous people who are taking advantage of the confusion. Please note that if someone texts, calls or emails claiming to be from HMRC, saying that you can claim financial help or are owed a tax refund, and asks you to click on a link or to give information such as your name, credit card or bank details, it is a scam.
Update for self employed and members of a partnership
You can claim a grant through the coronavirus (COVID-19) Self-employment Income Support Scheme if you're self-employed or a member of a partnership and have lost income due to coronavirus.
This scheme will allow you to claim a taxable grant worth 80% of your trading profits up to a maximum of £2,500 per month for the next 3 months. This may be extended if needed.
You can apply, if:
- You are a self-employed individual or a member of a partnership and you:
- have submitted your Income Tax Self-Assessment tax return for the tax year 2018-19
- traded in the tax year 2019-20
- are trading when you apply, or would be except for COVID-19
- intend to continue to trade in the tax year 2020-21
- have lost trading/partnership trading profits due to COVID-19
Your self-employed trading profits must also be less than £50,000 and more than half of your income comes from self-employment. This is determined by at least one of the following conditions being true:
- having trading profits/partnership trading profits in 2018-19 of less than £50,000 and these profits constitute more than half of your total taxable income
- having average trading profits in 2016-17, 2017-18, and 2018-19 of less than £50,000 and these profits constitute more than half of your average taxable income in the same period
If you started trading between 2016-19, HMRC will only use those years for which you filed a Self-Assessment tax return.
If you have not submitted your Income Tax Self-Assessment tax return for the tax year 2018-19, you must do this by 23 April 2020.
HMRC will use data on 2018-19 returns already submitted to identify those eligible and will risk assess any late returns filed before the 23 April 2020 deadline in the usual way.
How much you’ll get
You’ll get a taxable grant which will be 80% of the average profits from the tax years (where applicable):
- 2016 to 2017
- 2017 to 2018
- 2018 to 2019
To work out the average, HMRC will add together the total trading profit for the 3 tax years (where applicable) then divide by 3 (where applicable) and use this to calculate a monthly amount.
It will be up to a maximum of £2,500 per month for 3 months.
We’ll pay the grant directly into your bank account, in one instalment.
How to apply
You cannot apply for this scheme yet.
- HMRC will contact you if you are eligible for the scheme and invite you to apply online.
- Individuals do not need to contact HMRC now and doing so will only delay the urgent work being undertaken to introduce the scheme.
- You will access this scheme only through GOV.UK. As already stated if someone texts, calls or emails claiming to be from HMRC, saying that you can claim financial help or are owed a tax refund, and asks you to click on a link or to give information such as your name, credit card or bank details, it is a scam.
After you’ve applied
Once HMRC has received your claim and you are eligible for the grant, we will contact you to tell you how much you will get and the payment details.
If you claim tax credits, you’ll need to include the grant in your claim as income.
Other help you can get
The government is also providing the following additional help for the self-employed:
New Updates on Furloughing
New guidance has also confirmed that those made redundant after 28 February 2020 can be re-employed and placed on furlough.
Those on furlough will also be permitted to volunteer without risking their pay - and will be able to join the 500,000 members of the public who have signed up so far to help the NHS during the coronavirus outbreak.
Under the new guidance, it is our understanding that employees can rotate around periods of furlough and work, provided that each period of furlough lasts for a minimum of three weeks.’
The Government will now cover NI and employer auto enrolment costs for furloughed workers
In a further update to the Coronavirus Job Retention Scheme guidance we understand that the government has announced that it will now cover the employer national insurance (NI) and employer auto enrolment costs for furloughed staff.
In addition to employer National Insurance Contributions, the government will also pay the minimum auto-enrolment (AE) pension scheme contributions employers have to pay on staff wages for furloughed staff. The employer minimum contribution rate is 3%, while employees have to pay 5%.
The Treasury says the latest move could save businesses an extra £300 a month for each employee under the scheme.
We really would like to reiterate the need to be acutely aware of the need to ensure that you can distinguish between genuine communication from the Government and messages from scammers.
Do not give out private information (such as bank details or passwords), reply to text messages, download attachments or click on any links in emails if you’re not sure they’re genuine.
Local Authorities should be contacting you if you are eligible to apply for business grants but if you are at all concerned you are welcome to ask us, and we will look into it for you.
For more guidance on how to avoid and report scams and phishing click here.
Several people have asked whether people will claim fraudulently and feel it is unfair that some businesses will take money to which they are not entitled. The Government has stated that it will retain the right to retrospectively audit all aspects of the scheme with scope to claw back fraudulent or erroneous claims.
The key rules for the self employed Income Support Scheme
- Support will be 80% of monthly profits, averaged over three years (2016/17, 2017/18 and 2018/19)
- It will be capped at £2,500 per month for three months (i.e., up to £7,500 in total), but this may be extended.
- It is only available if average annual taxable earnings are below £50,000.
- The majority of income has to be from self-employment.
- Unlike furloughed employees, the individual can continue to operate the business.
- Those who started self-employment after 5 April 2019 are excluded.
- HMRC will contact those eligible.
- HMRC is allowing those who have yet to file their tax return for 2018/19, which was due on 31 January 2020, an additional four weeks to file and get up to date.
- The scheme will be available from the beginning of June 2020, effectively back-dated three months to 1 March 2020, and paid in one lump sum.