Furlough – The New F Word

On the 20^th March 2020,  Chancellor Rishi Sunak announced a government backed Coronavirus Job Retention Scheme in the form of grants that will cover 80% of salaries for retained workers capped at £2,500 per month.

How does this work?

All non-essential premises have been ordered to close and although there are jobs that can be done remotely, many cannot or there is not enough work.  Employers now have a choice whether to layoff or furlough their workforce that are unable to fulfil their roles due to the this situation.

Layoff versus Furlough?

Laying off employees is permanent and the employee will no longer receive a salary or benefits. They would have to apply for Universal Credit should they be unable to secure new employment.

Furlough is a temporary, employees will remain employed with 80% of their salary covered by the CJRS scheme. They will return to work in the foreseeable future.

Who Can Claim?

The scheme is open to all UK employers that had created and started a PAYE payroll scheme on or before 28 February 2020 and include:

• Businesses
• Charities
• Recruitment agencies (agency workers paid through PAYE)
• Public authorities

Where a company is being taken under the management of an administrator, the administrator will be able to access the Job Retention Scheme.

Public sector organisations or non-public organisations that receive funding for staff costs are not expected to furlough employees.

What you can claim?

Employers can claim for:-

• 80% of wages up to £2,500 a month
• Associated Employer National Insurance contributions
• Minimum automatic enrollment employer pension contributions on that wage. 

Employers can use this scheme anytime during this period.

Which employees are eligible?

• full-time employees
• part-time employees
• employees on agency contracts
• flexible or zero-hour contracts employees
• Employees who are shielding in line with public health guidance
• Employees on sick leave or self-isolating (can be furloughed after isolation period or recovery) The employee is entitle to SSP until such time.
• Employees who were made redundant since 28 February 2020  (if they are rehired by their employer).

For further information and clarification with regards to maternity pay, click here for more guidance.

The Procedure?

• Identify and select which employees need to be furloughed.
• Notify the employee of the decision in writing ( if they refuse – seek guidance as the employees contract may need to be amended). Include date furlough starts, review date and how to stay in contact in your notification.
• Keep employees on the payroll
• Make sure the furlough lasts at least 3 weeks.  

Claims must be made via “new portal” which will be available from end April 2020.  

To claim, you will need:

• Your ePAYE reference number
• The number of furloughed employees
• The claim period (start and end date)
• Amount claimed (per the minimum length of furloughing of 3 weeks)
• Bank account number and sort code
• Contact name
• Your phone number

ONLY ONE CLAIM to be submitted every 3 weeks, which is the minimum length an employee can be furloughed for.

Once claims have been received and granted, funds will be paid into the employers UK bank account.

HMRC will issue more guidance with regard to claims calculations for Employer NI Contributions and pension contributions, before the scheme becomes live.

Claims can be backdated until the 1st of March if applicable.

Tax Treatment

Payments received under the scheme are made to offset these deductible revenue costs. 

Therefore, they must 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

Additional information

An employer can top up their employee’s wages with the 20% shortfall.

A furloughed employee may not work for the employer during the furloughed period.  They can undertake training or volunteer subject to public health guidelines as long as they are not making money or providing services to their employer.

If the employee undertakes training whilst on furlough, they must receive NLW/NMW even if this is more than the 80% provided by the scheme.

Source: Gov.uk Website / Acas Website