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Furloughed Worker Update

More Guidance On The Covid-19 Job Retention Scheme

Firstly, we would like to thank all of you who have fed back to us during this last week with regards to our regular update emails. Your positive messages of support and encouragement means a lot to the entire team at Myers Clark who aim to support all of you during what is a very testing time indeed.

Earlier this week we posted an article about the Job Retention Scheme, pointing out advice for Employers. Since then we have had further clarification on this scheme which is outlined in this update.

But first to recap: employers can use a HMRC portal to claim a grant of up to 80% of each employee's (who are designated as a “furlough worker”) wage for all employment costs, up to a cap of £2,500 per month. The furloughed workers should not undertake any work for the company, including answering calls or emails or any other tasks. The scheme is open to all UK employers that had created and started a PAYE payroll scheme on 28 February 2020.

Further Clarification

In addition, it is now clear that employers will be reimbursed for the associated employer NICs and minimum auto enrolment pension contributions on that wage, but bonuses are not included. The scheme will take effect from 1 March 2020, it is planned to run for an initial period of three months, though it may be extended where necessary

The scheme will cover any type of contract, including full-time employees, part-time employees, those who are agency workers and employees on flexible or zero-hour contracts. The scheme also covers employees who were made redundant since 28 February 2020, if they are re-hired by their employer. While on furlough, the employee’s wage will be subject to usual income tax and other deductions.

If an employee has been asked to do reduced hours or has been given a pay cut by the employer, the scheme will not cover such employees. Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme.

Care needs to be given to working out the salary where the pay varies for the furloughed worker. The guidance is as follows:

  • If the employee has been employed for a full twelve months prior to the claim, you can claim for the higher of either:
  1. the same month’s earning from the previous year
  2. 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.

Wages of furloughed employees will be subject to Income Tax and National Insurance as usual. Employees will also pay automatic enrolment contributions on qualifying earnings, unless they have chosen to opt-out or to cease saving into a workplace pension scheme.

Employers will be liable to pay Employer National Insurance contributions on wages paid, as well as automatic enrolment contributions on qualifying earnings, unless an employee has opted out or has ceased saving into a workplace pension scheme.

There is also more guidance regarding those employees who are currently on Statutory Sick Pay, Statutory Maternity Pay, plus those on unpaid leave and paternity pay. We will be updating you on these on Monday.

Furthermore, more guidance will become available on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions, before the scheme becomes live from HMRC.

What you need to make a claim:

  • your ePAYE reference number
  • the number of employees being furloughed
  • the claim period (start and end date)
  • amount claimed (per the minimum length of furloughing of 3 weeks)
  • your bank account number and sort code
  • your contact name
  • your phone number

You will need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.

You can only submit one claim at least every 3 weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until 1 March if applicable.

The online portal to make the claim is not available yet. We expect it to be available by the end of April 2020. We will of course keep you updated on the progress.

What to do after you have claimed

Once HMRC have received your claim and you are eligible for the grant, they will pay it via BACS payment to a UK bank account.

You should make your claim in accordance with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll.

You must pay the employee all the grant you receive for their gross pay, no fees can be charged from the money that is granted. You can choose to top up the employee’s salary, but you do not have to.

Due to timings there will be a gap in the first month, i.e. April’s pay.

Finally…

Any payments received by a business under the scheme are made to offset these deductible revenue costs. They must therefore be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles.

We are presuming there will be no VAT implications, but more will become clear in due course.

What do you need to do now?

In our last update we pointed out that it was important that you now identify those workers you want to “furlough” and please remember in identifying those workers the equality and discriminations laws still apply.

You should discuss this scheme with your staff and make any changes to the employment contract by agreement. You may need to seek legal advice on the process.

Please identify the workers based on business logic and mention the reasons in the written notice. We included a sample letter in our last email and if you need to access this again please visit the job retention scheme page on the left hand side of this article. 

You will need to take the time to think carefully about the business continuity over the next few weeks and months and establish you cash flow position over this period. We are happy to discuss this with you and assist you where possible.

Please call us and speak to your normal relationship director/manager if you would like to discuss any of the above or any other matter. We are here to help you through these tough times.

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