Coronavirus Job Retention Scheme

HMRC have contacted us to confirm that the portal will open on 20th April 2020.

Coronavirus Job Retention Scheme

The portal opened on 20th April and a significant number of claims have been successfully submitted. HMRC have been processing payments within 4 – 6 working days of receiving the claim. On 12th May, the Chancellor announced that the scheme has been extended until the end of October with the introduction of new part-time furlough flexibility from 1st August. The scheme will continue in its current form until 31st July before the new flexibility measures are introduced and further details are expected later in May.

HMRC have published their own calculator which can be found by clicking here. We have prepared our own data capture tool for clients’ use which can be foundby clicking here.

HMRC have released further details about the Coronavirus Job Retention Scheme which can be found by clicking here. This update has answered some key questions and the scheme is slightly more generous than previously suggested.

Eligibility

All employers with a registered PAYE payroll scheme as at 19 March 2020 are eligible to make a claim in respect of any employees for whom an RTI submission notifying a payment in respect of the employee had been made on or before 19 March 2020.

An employee must be furloughed for a minimum of three weeks.

It is also clear that an employee must not work for the company in any capacity during this period. This is an important point of clarification as most employers will need at least one employee to maintain the administrative function of a company during the furloughed period. While there is no suggestion that directors are ineligible, the fact that no work can be carried out for the company during the furloughed period must be considered before making any such claim in respect of directors.

What you can claim

Employers can use a portal to claim a grant for 80% of furloughed employees’  usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions (3% of salary between £6,136 and £50,000 per annum) on that wage.

Minimum automatic employer pension contributions for March 2020 are 3% of any salary between £6,136 and £50,000 (this will change to between £6,240 and £50,000 effective April). If an employer’s pension contributions are more generous than this, there will still be a small cost to the employer. It may therefore be necessary to review your pension arrangements and take employment law advice as to whether it is possible to vary the contribution rate for furloughed employees.

This means that any employees with salary up to £37,500 will have 80% of their gross wage covered by the grant. Any employee with a salary above £37,500 per annum will have £2,500 of their gross pay covered by the grant. It remains at the discretion of the employer whether to top this amount up.

Example
Employer A pays employer contributions of 5% on all earnings (ie not just eligible earnings). Employees contribute 3% of their gross salary.

Employee A receives a salary of £37,500. At 80% of the employee’s monthly salary, the full government grant of £2,500 will be receivable to cover the gross salary and employer’s national insurance contribution. A further £59.66 will be receivable for pension contributions [ 3% x (30,000 – 6,136) / 12 ]. On normal contractual terms, the employer would make contributions of £125 [ 5% x 30,000 / 12 ] and as such there would be a cost to the employer of £65.34 per month based on the existing employment terms.

After deduction of employee national insurance contributions, PAYE and pension, employee A’s net pay will reduce by £406.25 per month compared to the previous month. [ 20% x £37,500 x {1 – (12% + 20% + 3%) } / 12 ].

Details of what you can claim based on an employee’s status are as follows:-

Full and part-time employees

The employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. Any fees, commission and bonuses should not be included.

Employees whose pay varies

The calculations varies depending on the employee’s length of service as follows:-

  • If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, you can claim for the higher of either:
  • the same month’s earning from the previous year
  • average monthly earnings from the 2019-20 tax year
  • If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
  • If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.

Once you’ve worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim. If Wenn Townsend prepare the payroll for you, we will complete this calculation on your behalf.

When you can claim

Employers can use this scheme anytime during this period. Claims can be made every three weeks. Claims can be backdated to 1st March if applicable.

HMRC will review the claim and make the payment of any amounts due via BACS to a UK bank account