Furlough and the Corona Virus Job Retention Scheme – Guide to Employers
This year has been incredibly tough year for small businesses. In addition to dealing with lockdowns, businesses having to close their operations temporarily, but also the burden of navigating financial support that’s been available from the government which has been changing over the course of time. The Corona Virus Job Retention Scheme was one of the mechanisms put in place by the government to support employees and employers during this difficult time.
Employers might need to put some or all of their employees on temporary leave (‘furlough’) during the coronavirus (COVID-19) pandemic.
This means an employee or worker can agree with their employer to be put on:
- furlough to stop work temporarily but stay employed
- ‘flexible furlough’ to work some of their usual hours and be put on furlough for the hours they did not work
This can be a difficult time for both employers and staff. It’s a good idea to make sure staff has a way to communicate with the employer and other people they work with.
The Coronavirus Job Retention Scheme (CJRS) helps employers pay employees their regular wages, even if the business is unable to operate. This means employees are kept on an employer’s payroll, but as furloughed employees.
Corona Virus Job Retention Scheme (CJRS)
HMRC launched CJRS online claim service and on the 20thof April 2020. The scheme allows UK employers to furlough employees and apply for a grant from the government covering up to 80% of the affected employees’ usual monthly wage costs up to a maximum of £2,500 (per month).
Corona Virus Job Retention Scheme (CJRS) Extension
The furlough scheme (Coronavirus Job Retention Scheme) was due to end on 31 October 2020. But on 31st October 2020, the government announced a further period of lockdown for England. As a result, the CJRS furlough scheme is being extended for six months and will remain open until 31st March 2021.
The extended scheme is available throughout the UK and is open to new entrants who have not previously claimed. Existing claimants can continue to claim under the extended scheme.
Businesses will have the flexibility to use the scheme for employees for any amount of time and shift pattern, including furloughing them full-time.
For claim periods running to January 2021, employees will receive 80% of their usual salary for hours not worked, up to a maximum of £2,500 per month. There is no employer contribution to wages for hours not worked. Employers will continue to pay employer’s National Insurance costs and the cost of the minimum pension auto-enrolment contributions that the employer usually makes to their employee’s pension for the hours the employee does not work.
Who can claim the extended CJRS
The government has said: “If you cannot maintain your workforce because your operations have been affected by coronavirus (COVID-19), you can furlough employees and apply for a grant to cover a portion of their usual monthly wage costs where you record them as being on furlough.”
Under the new rules any UK employer can claim, but they must have:
- created and started a PAYE payroll scheme on or before 30th October 2020 (the previous scheme had a payroll requirement deadline of 19th March 2020)
- enrolled for PAYE online
- a UK bank account.
- Claims can be made from 8am Wednesday 11th November.
- Claims made for November must be submitted to HMRC by no-later than 14th December 2020.
- Claims relating to each subsequent month should be submitted by day 14 of the following month, to ensure prompt claims following the end of the month which is the subject of the claim.
Who can be furloughed
Any of the following can be put on furlough, whether they work full time or part time:
- agency workers
- those on zero-hours contracts
Employers can also furlough those who are temporarily unable to work because:
- they’ve been advised to stay at home by their doctor because of an underlying health condition (‘shielding‘)
- they have childcare responsibilities
- they’re caring for a vulnerable person in their household
Employees and workers who were not furloughed before 31 October 2020 are now eligible.
What furloughed staff can and cannot do
Furloughed staff can do:
- volunteer work, as long as it’s for another employer or organisation
- training to keep their skills and learning up to date
Furloughed staff cannot:
- do tasks or activities that make money for their employer or an organisation linked to their employer
- provide a service for their employer or an organisation linked to their employer
- If staff are on flexible furlough, they can do work for their employer during the hours they are not on furlough. They must get their full normal pay for any hours worked. An employer cannot claim for hours worked through HMRC’s Coronavirus Job Retention Scheme.
Directors of personal service companies can claim for PAYE costs if furloughed
If you are a director of a limited company, even if you are the sole director of the company (ie. a personal service company) you can claim your PAYE salary costs up to the maximum of 80% of your average monthly wages (capped at £2,500 per month).
You cannot claim for any income from your company taken by way of dividends.
Your company will need to record its decision to place a director on furlough leave – this can be part-time or flexible furlough. The director may take on another job or alternative work (as a sole trader for instance) unrelated to your business.
Under the outgoing CJRS scheme, you had to calculate your CJRS claim based on the last salary amount you filed with HMRC before 19th March 2020. It’s not yet clear whether the new CJRS scheme will allow directors to claim a higher salary than the salary they were taking as at 19th March 2020.
Continuing claims for directors
If the director/employee was furloughed at any point between April and 31st October 2020, you should calculate the 80% amount based on the salary reported for previous CJRS claims. This usually means the average monthly salary during the 2019/20 tax year or the actual salary filed in an RTI submission before 19th March 2020.
New claims for directors
If the director/employee was not furloughed at any point between April and 31st October 2020 or did not submit any claims or qualify for CJRS, then the employee’s claim will be calculated based on their last pay period ending on or before 30th Oct 2020 and filed in an RTI submission before that date. These employee’s will only be eligible for periods starting on or after 1st November 2020.
Fixed salary claims for directors
If the director/employee has not filed a fixed monthly salary in the 2020/21 tax year to date, then the employer should base the calculation on 80% of average monthly salary from 6th April 2020 to the day their furlough started. Alternatively, the calculation can be made based on the gross salary paid during the same month of the 2019/20 tax year. This means the gross salary for the purpose of the claim for November 2020, will be based on the gross salary from November 2019.
Flexible furlough for directors
For flexible furlough, the claim is based on the “usual” hours worked on or before 19th March if previously furloughed. However, if flexible furlough started after 1st November 2020, the calculation is made based on the usual hours worked from 6th April 2020 and up to the employee’s first day of furlough on or after 1st November 2020.
For more information on Corona Virus Job Retention Scheme (CJRS) and eligibility criteria visit the GOV.UK website
At Libabun Accountancy, we use XERO Payroll. This Accounting application is updated with the CJRS scheme and submits your payroll online via HMRC PAYE scheme, for more information please give us a call on +44 01234 712840 and we will be happy to assist you.
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