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Why choose HGH?

Coronavirus Job Retention Scheme

Updated – 6 April 2020

The Job Retention Scheme was announced to deal with this specifically. The broad points of the scheme are that the Government, through HMRC, will provide a grant of the lower of 80% of the employee’s wage costs or £2,500. This will cover an employee’s costs of employment provided they are placed on furlough leave. Furloughed leave is new but essentially means that employees retain their employment but do not work. An employee must be furloughed for a minimum period of three weeks for the grant to apply. Employment Law still applies to them and the process of furloughing and therefore it is essential that advice is taken before you proceed with this measure to ensure that you follow the correct procedure.

The Job Retention Scheme is a really important tactic for businesses looking to retain good employees and save cash. We’ve updated our notes on the scheme, which is copied below for reference.

4 April 2020 news Furlough FAQ’s (including information on Director/ Shareholders of small limited companies. 

Updates 

  1. HMRC will be the body that administers the grant scheme.
  2. Now confirmed that Charitable and not for profit organisations will be eligible.
  3. Whilst the scheme is backdated to the 1 March grants will only be available when employers have agreed furlough terms with their employees and they have stopped work, subject to employment law in the usual way.
  4. Available to all employees on the payroll at 29 February.
  5. The employer will pay the employee through payroll and as such RTI submissions will still be maintained. This actually makes a lot of sense as it is a system that already works well.
  6. Relevant employees must be designated as furloughed employees.
  7. The scheme will not cover dividends where directors/ shareholders of owner managed companies pay small salaries and the balance as dividends.
  8. The grant will cover all employment costs including; salary, employer pension contributions and employer NIC.
  9. The grant will be taxed and should be included in the profits computation for the relevant year.

Illustration

Illustration (taken from the ICAEW article) shows how the grant would be calculated. Note assumes no pension payments. If a pension was paid (i.e. Mr A was opted in) the grant would cover this too being 80% x (£2,000 + £174 + Ers Pension) subject to the £2,500 cap. Note that the Ers NIC and Pension will be calculated using the new 80% salary as reference.

The original ICAEW article can be found here

What you’ll need to make a claim

To make a claim you will need the following information:-

HMRC advise that business owners will need to calculate the amount you are claiming. However, HMRC will retain the right to retrospectively audit all aspects of a claim.

HMRC advise that claims can be made using payroll data either “shortly before or during running payroll.”

How much you can claim?

Funding problems

One of the problems with the scheme is the delay in being able to make claims and receive funds. If an employee was furloughed on 20 March there could be 11 days available for the March claim.

The employer would need to pay the employees net pay on 31 March and 30 April well before potentially being able to make a claim in early May for receipt sometime in mid to late May. Whilst we can’t be sure this will apply for all businesses, Banks may be willing to extend or arrange overdrafts for a limited time for the amounts expected to be claimed.

Updated 26th March 2020: The Government has announced a new scheme to protect people’s jobs during the crisis. The scheme is open to all UK businesses and will see the Government pay part of the wages of employees that would otherwise have been laid off. The scheme will be will be open for an initial three months from 1 March however Rishi Sunak said “… and I will extend the scheme for longer if necessary”. 

This is a grant from the Government, not a loan, so it will not need to be repaid. Under the new Coronavirus Job Retention scheme, government grants will cover up to 80% of the salary of PAYE employees who would otherwise have been laid off during this crisis. The scheme, open to any employer in the country, will cover the cost of wages backdated to 1 March 2020 and will be open before the end of April. It will continue for at least three months, and can include workers who were in employment on 28 February. Employees still working, full time or part time or on shorter hours will not qualify

To access the scheme employees, or certain employees, need to be designated as “furloughed workers”. You will need to notify these workers of the change, in writing (email will be fine) making sure you follow a fair selection process.  It’s worth noting that the Government is not changing employment law to allow this to change in status. Therefore, making this change to an employees status remains subject to employment law. We have put together an example ‘Agreement for Furlough Leave‘ letter that you may wish to download here.

You have the option of topping up the remaining 20%, but it is not mandatory. 

To claim under the scheme employers will need to:

While HMRC is working urgently to set up a system for reimbursement, we understand existing systems are not set up to facilitate payments to employers. Businesses that need short-term cash flow support, may benefit from the VAT deferral option and may also be eligible to apply for a Coronavirus Business Interruption Loan.

HMRC are developing a system that will allow employers to provide this information through an online portal and once processed they will issue reimbursement. Managing cash during this intervening period is still crucial (see our advice about cashflows later in this guide).

It should also be noted that the employee should be shown on the February pay run and that a claim will be possible for periods from 1 March 2020. It is not clear yet how much those on zero hours’ contracts or fluctuating wages will be treated, but it is expected that it will be either the amount which was paid through last month’s payroll or an average of the past few months.   Careful planning and consideration of employee’s contracts of employment is required when considering this scheme but it is certainly a significant boost to companies in what are unprecedented times.

N.B. It should be noted by employers that in order for you to be able to claim a grant of 80% of wages for all employment costs (up to a cap of £2,500 per month), furloughed employees should not undertake any work for you.