Chancellor Rishi Sunak has announced that the UK furlough scheme (the Coronavirus Retention Scheme) is to be extended until the end of October. In this article, we explain how the scheme works, who is eligible to claim and how you go about making a claim.
The Coronavirus Retention Scheme allows businesses that cannot maintain their current workforce because their operations have been severely affected by Covid-19 to furlough employees and apply for a government grant that covers 80% of their usual monthly wage costs, up to £2,500 per month. Employers can also claim the associated Employer National Insurance contributions and pension contributions (up to the level of the minimum automatic enrolment employer pension contribution) on that subsidised furlough pay.
On 12 May 2020, the government announced that the scheme will now be extended until the end of October 2020, ie beyond its original four months ending on 30 June. The purpose of the scheme is to help employers affected by coronavirus to retain their employees and protect the UK economy.
Making a claim is a four-step process as follows:
1. Check if you can claim
Any entity with a UK payroll can apply, including businesses, charities, recruitment agencies and public authorities, provided it has:
- created and started a PAYE payroll scheme on or before 19 March 2020
- enrolled for PAYE online
- a UK bank account
Specific rules apply to public sector organisations, individuals who pay employees through PAYE (such as nannies), and companies in administration. You can find out more about these rules here.
Which employees can you claim for?
You can claim for employees on any type of employment contract including full-time, part-time, agency, flexible or zero-hour contracts. Foreign nationals are eligible. When on furlough, an employee cannot undertake work for the organisation although the government has indicated that this may change from August to enable firms to bring staff back to work.
You can only claim for employees employed on 19 March 2020 and on your payroll before that date.
Detailed rules apply to employees who:
- were made redundant or stopped working for you after 28 February 2020
- are on a fixed contract
- are on unpaid leave
- are self-isolating or on sick leave or become sick while furloughed
- have more than one job
- are office holders such as company directors or salaried members of an LLP
- are contractors with public sector engagements in scope of IR35 off-payroll working rules (IR35)
- are on maternity leave, adoption leave, paternity leave, shared parental leave or parental bereavement leave
Please contact us if you require further information in relation to any such employees.
Employees who are unable to work because they have caring responsibilities resulting from Covid-19 can be furloughed. This includes, for example, employees who need to look after children.
Agreeing to furlough employees
To be eligible for the grant, employers must confirm in writing to their employee that they have been furloughed and a record of this communication must be kept for five years.
Employers should discuss with their staff and make any changes to their employees’ employment contracts by agreement. When employers make decisions in relation to furloughing, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.
You do not need to place all your employees on furlough. The minimum furlough period is three consecutive weeks and employees must be taken off furlough when they return to work. An employee can be furloughed multiple times, but each separate instance must be for at least three weeks.
Employees cannot do any work or provide any services for you (or any linked organisation) while on furlough though they can do volunteer work or undertake training.
Employees must still pay the taxes they normally pay out of their wages. During furlough, they will still have the same rights at work, including the right to statutory sick pay, maternity and parental rights, rights of unfair dismissal and rights to redundancy payments.
2. Calculate 80% of your employees’ wages
Once you have checked that you are eligible to claim, you need to calculate 80% of your employees’ wages.
You can claim for 80% of your employees’ wages (even for employees on National Minimum Wage) up to a maximum of £2,500 per month.
You’ll still need to pay employer National Insurance and pension contributions on behalf of your furloughed employees, and you can claim for these too.
You cannot claim for:
- additional National Insurance or pension contributions you make because you choose to top up your employees’ wages
- any pension contributions you make that are above the mandatory employer contribution
If you choose to top up your employees’ wages, they still must not work or provide any services for the business while furloughed.
The government’s guidance web page sets out what to include when calculating wages and how to use the HMRC calculator. Please note that HMRC’s calculator does not cover all situations.
HMRC will retain the right to retrospectively audit all aspects of your claim.
3. Make your claim
To make a claim, you will need:
- to be registered for PAYE online
- your UK bank account number and sort code and the billing address of your bank account
- your employer PAYE scheme reference number
- the number of employees being furloughed
- each employee’s National Insurance number, payroll or employee number
- the start date and end date of the claim
- the full amount you’re claiming for including employer National Insurance contributions and employer minimum pension contributions
- your phone number and contact name
You also need to provide either:
- your Corporation Tax unique taxpayer reference, or
- your Self Assessment unique taxpayer reference, or
- your company registration number
You will also need the Government Gateway user ID and password. Please ask us if you cannot find this.
Specific rules apply if you are furloughing 100 or more employees.
If we act as your agent for PAYE online, we will be able to claim on your behalf. Please let us know if you would like us to do this for you.
Once you’ve claimed, you’ll be given a claim reference number. HMRC will then check that your claim is correct and (assuming it is) pay the claim amount by BACS into your bank account within six working days.
You must keep a copy of all records, and tell your employees that you have made a claim and that they do not need to take any more action.
4. Report your employees’ wages
If you’ve claimed through the scheme, you should check if you need to report payments on the PAYE Real Time Information system as this will depend on whether you are using the grant to pay wages or reimburse wages you’ve already paid.
If you are using the grant to pay wages, you should pay your employees on their contractual payment date and the grant should be reported to HMRC via your payroll software on a Full Payment Submission (on or before the date that it is paid to your employees).
If you have not paid any of your employees any wage payments in a tax month, you must submit an Employer Payment Submission stating you have not paid any employees in that tax month. The Employer Payment Submission should be sent no later than 19th of the following tax month where possible. Do not submit a nil Full Payment Submission. If we prepare your payroll for you, we will do this on your behalf.
Please contact us if you require more information about these requirements.
Changes announced on 12 May 2020
The government has announced that the scheme will be extended until the end of October and it will continue to pay 80% of furloughed workers’ wages up to £2,500 per month until the end of July.
From August, the scheme will be amended to allow greater flexibility to bring staff back to work. Chancellor Rishi Sunak has said that from August employers would need to “share with the government the cost of paying salaries” but details of how this will work have not yet been released. We will update you on this when they are.
Finally, a warning
If you receive a text, call or email which claims to be from HMRC, offering financial help or a tax refund and asking you to click on a link or to give personal information, it is a scam. You should forward the email to email@example.com and then delete it. You can read more about phishing and HMRC-related scams here.
If you would like to discuss applying for a grant under the Coronavirus Retention Scheme, please call us on 020 7625 4545.
For all latest Coronavirus (Covid-19) updates, please visit our dedicated support page here.
Warning: The above is merely general guidance and should not be relied upon as formal advice. The advice we give to each client will depend on their specific circumstances. We suggest you take professional advice before taking any action in relation to the issues discussed above.