Coronavirus Job Retention Scheme (JRS) – Updated 12 May
Advice for Employers
The Coronavirus Job Retention Scheme was announced by the Chancellor Rishi Sunak on 20 March. By the time the on-line portal was opened on 20 April, six versions of HMRC guidance had been issued, plus a set of HM Treasury Directions. In addition, guidance has been issued by ACAS. The government guidance is now quite lengthy, and yet it is still not possible to produce a definitive guide to the CJRS. The following covers the main points.
The initial scheme covers the period 1 March 2020 to the end of July, following an extension from the 30 June 2020.
From August to at least the end of October, it will be modified so that businesses will be able to bring furloughed employees back to work on a part time basis. The cost of wages and salaries will then be shared between their employers and the government. The employees will continue to receive up to 80% of their salary, up to £2,500.
The scheme will operate in all regions and all sectors, and could be extended beyond 31 October in the same or revised form. Further guidance will be issued by the end of May on the operation of the scheme.
The current scheme – to 31 July
Under the current scheme, an employee is said to be furloughed under the CJRS if
- The employee has been instructed by the employer to cease all work in relation to their employment,
- The period for which the employee ceases work is 21 calendar days or more, and
- The instruction is given by reason of circumstances arising as a result of the coronavirus.
Employers must confirm in writing to employees that they have been furloughed, in a manner consistent with employment law.
It appears from the Treasury Direction that the furlough period can be open ended provided that the period is at least three weeks. However, if the employer stated at the outset that the furlough period is to be a fixed period that came to an end on a certain date, and they then wanted to extend that period, the extension would need to be at least three weeks.
Employees who can be claimed for
Employees must have been on the PAYE payroll on or before 19 March 2020 and must have been included on a Real Time Information (“RTI”) submission on or before 19 March.
A claim can be made with effect from the date they ceased work, not the date the decision was made or the date the employees were written to.
The original government announcement indicated that all those on the payroll on 28 February 2020 would be covered by the scheme. This is no longer sufficient in itself. To qualify, a person would also normally need to have received a payment of wages on or before 19 March., and such payment would need to be included on an RTI submission.
Company directors are subject to the same rules as other employees, in that they may be furloughed and required to do no work. There is, however, one slight relaxation in that directors are allowed to carry out work that they are required to do by an Act of Parliament in relation to filing accounts at Companies House, or other returns such as Confirmation Statements. Arguably, this extends to filing a tax return or VAT return, but not to work towards completing or preparing such a return.
What is covered?
For each furloughed worker, the employer can claim:
- 80% of reference pay. This element of the grant is capped at £2,500 per furloughed employee (see further below)
- Employer’s NIC on the furlough pay (see further below)
- 3% pension contributions
This is subject always to the employer actually making a furlough payment equal to or more than the amount claimed for
How is reference pay calculated?
The calculation of reference pay depends on whether the worker is a “fixed rate” employee or not.
A fixed rate employee is one who is entitled to a fixed salary in respect of their basic hours, as set out in their contract. The reference salary used is the amount payable in respect of the latest pay period ended on or before 19 March 2020. So for a monthly paid employee paid at the end of the calendar month, their reference pay would be their February 2020 salary.
For all other employees who started employment before 6 April 2019, the CJRS claim is the higher of:
- 80% of their regular wage for the corresponding pay period in 2019. For example, when calculating furlough pay for April 2020, the corresponding pay period is April 2019.
- 80% of the average monthly regular wage for the tax year 6 April 2019 to 5 April 2020 (or the date they were furloughed if earlier than 5 April).
For those who started work after 6 April 2019, the averaging calculation is based on their pay in the period from the date they started work up to the day before they were furloughed, or 5 April 2020 if this is earlier.
What is included in Regular Wages?
For the purpose of calculating “Regular Wages” above, the wages to be taken into account must exclude:
- Performance bonuses
- Payments which are conditional on any matter
- Discretionary overtime
- Non-cash payments
The guidance makes it clear that payment for piece work may be treated as regular wages, but it does not expand on what precisely is meant by “discretionary” or “non-discretionary” overtime.
Dividends are not covered by the CJRS.
NIC is calculated in the normal way on furlough pay, and must be paid as part of the normal PAYE/NIC payment under RTI. However, the NIC on furlough pay may be reimbursed under the CJRS.
The NIC covered by the CJRS is limited to the NIC on salary and wages funded by the scheme. Where an employer pays additional salary over and above the amount funded by the CJRS, the NIC must be apportioned between the furlough pay covered by the scheme and the furlough pay not so covered. The grant can be claimed only on the NIC apportioned to the furlough pay covered by the scheme.
Reference also needs to be made to the Employment Allowance. The Employment Allowance is a deduction from the Employer’s NIC bill, amounting to £3,000 for 2019/20 and £4,000 for 2020/21. For the year 2020/21, it is only available where the secondary (employer’s) liability was under £100,000 in 2019/20.
Where the Employment Allowance is claimed, employers must ensure that the NIC claimed under the CJRS is no more than the employer’s NIC actually payable for the period, after deducting the Employment Allowance.
Penson contributions will normally be payable on furlough pay. Employer contributions can be claimed under the CJRS.
The amount reclaimable is calculated as the minimum auto-enrolment contribution, which is calculated as 3% of pay less the lower level of qualifying earnings (£520 in 2020/21). However, it should be noted that the claim can be made whether the pension contribution is made via auto-enrolment or an alternative pension scheme.
Where the employee is furloughed during the pay period, the pension contribution needs to be apportioned between the pre and post furlough period, on a daily basis, for the purpose of calculating the grant.
Where the employee is paid more than the minimum furlough pay, the grant may be claimed on the pension contribution as calculated on the minimum furlough pay, taking into account the full amount of the lower level of qualifying earnings under auto enrolment rules.
Example from Gov.UK
A salaried employee of A Ltd earns £2,125 per month, and is furloughed from 1 May 2020 to 31 May 2020. A Ltd has agreed to top up the employee’s salary to its usual amount, including making employer pension contributions which are usually 3% of the employee’s entire salary. The amount of gross pay grant is 80% of £2,125, which is £1,700.
The grant that can be claimed towards the employer pension contributions is the lower of the minimum level of contributions for an auto-enrolment pension, based on the furlough payment, and the amount actually paid by A Ltd.
The minimum level of auto-enrolment contributions is:
Start with £1,700 (this is the gross pay grant)
Deduct £520 (this is the Lower Level of Qualifying Earnings)
Multiply by 3% = £35.40
The total employer pension contribution made by A Ltd under the terms of the pension scheme is the gross pay to the employee of £2,125 multiplied by 3%, which equals £63.75.
As A Ltd can only claim the lower of the minimum level of contributions for an auto-enrolment pension (based on the furlough payment) and the amount actually paid into the employee’s pension, they can claim £35.40 to cover employer pension contributions.
Tax Treatment of CJRS Grant
The CJRS grant will form part of the taxable profits of the employer for the purposes of corporation tax and business income tax.
We are here to help you with all aspects of the JRS process. From analysis of employees to be furloughed to the formal claim process. Please speak to your normal MHA Moore and Smalley contact.
The above covers the current scheme, which will end on 31 July 2020. We will post details of the modified scheme as soon as we have them.