The Coronavirus Job Retention Scheme – The Important Facts
The HMRC Job Retention Scheme Portal has been live for nearly two weeks now and the first applicants have started receiving payments. But with furloughing being such a new concept and the many updates to the guidance from the government, it can be difficult to understand. Here we look at the most important points.
What Does Furlough Mean?
Furloughing means that employees will effectively be on a temporary period of leave from work but remain employed and on the payroll. They receive at least 80% of their basic salary up to £2,500 per month. During this time, the employee may do no work for the company. Directors can also furlough themselves based on their PAYE salary alone, given that they do no income-generating work for the company, and only do their statutory director duties.
Who is Eligible?
An employee can be furloughed if they were on the payroll before 19th March 2020. For most, this means that they were on the February payroll. For those employed in March, there must have been an RTI submission before 19th March, informing HMRC of the employment. Employees that were made redundant after 28th February can be re-employed and furloughed.
What Needs to be Done?
For an employee to be furloughed, there must be a written agreement in place between the employee and employer, agreeing to the terms of furloughing. It needs to state the start date of furlough leave, which can be backdated to 1st March at the earliest. An employee may be called back to work and re-furloughed, providing that each furlough period is at least 3 weeks long.
What will HMRC Pay?
For full time and part-time salaried employees, the employee’s actual monthly basic salary before tax, as of 28 February 20 should be used to calculate the 80%. Fees, commission, and bonuses will not be included in the calculation. If the employee has variable pay, basic salary is the higher of the same month’s earning from the previous year and average monthly earnings from the 2019-20 tax year, from the date they started work. HMRC has a handy online calculator to work out what employers will get paid, breaking the payment down into furlough pay, employer national insurance contributions, and employer minimum pension contributions. This can be found here:https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme
It’s important to remember that HMRC reserve the right to go back and review the claims in the future and will have the right to demand refunds and issue penalties to any employers abusing the system. For this reason, it is essential to understand the guidance and submit a claim with accurate information.