The Coronavirus Job Retention Scheme – What employers need to do to claim for furloughed employees 21.04.20

HMRC has now opened its Job Retention Scheme Portal.

To access the claim form you need to go onto the HMRC Online Services using the Government Gateway, user ID and password issued to you when you registered for PAYE online. There is no other way to claim. Please click here for information on how to enrol for the PAYE online service.

We have explained below how to make the claim and what you need to do. We also draw your attention to some matters that you need to be aware of. Unfortunately, whilst the claim process is relatively straightforward, the calculation of what should be claimed is, in a lot of cases, not.

We can help you make the right claim at the right time so that your business and your employees can benefit from the Government’s support package. Contact us to find out more.

Making a claim

Before logging on you need to have calculated the amount of your claim. This may not be as easy as it sounds, particularly for March as it is unlikely that many people were furloughed from 1 March as the scheme was not announced until 20 March. HMRC has produced a daily rate for the £2,500 maximum monthly payment. This varies with the number of days in the month. It is £80.65 for March and May and £83.34 for April and June.

HMRC has also produced a calculator that you can use to work out the employee’s pay if they are paid a regular amount. It cannot cope with variable pay or scenarios where employers have topped up the employees’ pay. It is cumbersome to use for a single employee so may be very time consuming if you have furloughed a large number of employees.

The claim is for the lower of 80% of an employee’s regular monthly salary, or £2,500 per month. Although the £2,500 figure will always apply where the regular earnings exceed £3,125 per month (or £37,500 per annum), it appears that you must still calculate the 80% of regular pay figure for such employees. This is because HMRC will also reimburse the employer’s National Insurance, but where the salary exceeds £37,500 per annum, the reimbursable amount is the proportion of the total contribution that the £2,500 (or 80% figure) bears to the employee’s gross pay for the month. HMRC will also reimburse the employer’s pension contribution, but only where it is to an auto-enrolment scheme and only up to the minimum statutory payment which is currently 3%.

The calculation of the claimable amount for those that earn less than £37,500 per annum is far more complicated as is the calculation for those that are on variable pay. It is important the claim that is made is correct because not only can you not change it once it is submitted, but HMRC will be checking it. The form requires the claimant to make a declaration that the information provided is complete and correct. Accordingly, making the declaration knowing that it is incorrect may well be a criminal offence.

The claim form requires:

  • Your bank account number and sort code
  • Your PAYE scheme reference
  • The number of employees for whom you are claiming
  • The National Insurance number of each such employee
  • The start and end date of the claim
  • The full amount you are claiming, including the employer NIC and minimum pension contribution
  • A contact name and telephone number
  • Your own corporation tax or self-assessment UTR

You need to collect together this information before you access the Portal.

Additional information is required in respect of each employee if you have furloughed more than 100 people.

After you have submitted the claim

HMRC will issue you with a claim reference number and says that you MUST:

  • Keep a copy of all records, including:
  1. the amount claimed and claim period for each employee
  2. the claim reference number
  3. your calculation of the amount claimed
  • Tell your furloughed employees that you have made a claim and that they do not need to take any further action
  • Pay your furloughed employees if you have not already done so

Some points to be aware of 

The legal basis for the Job Retention Scheme is a Treasury Direction made under the Coronavirus Act 2020. This states:

1. That it is integral to the purpose of the scheme that the amounts paid under the scheme “are only made by reimbursement of the expenditure” authorised by the scheme.

2. The purpose of the scheme is for payments to be made in respect of costs of employment arising from the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease.

3. The payment must be reimbursed to HMRC immediately if you become unwilling or unable to use the payment for the purposes of the scheme.

4. No claim can be made in respect of an employee if it is abusive or is otherwise contrary to the exceptional purpose of the scheme.

5. An employee in respect of which a claim is made must have been shown in an RTI return prior to the time of the claim.

6. Where an employee was on unpaid leave before 28 February they cannot be furloughed until after their agreed period of leave ends.

7. The employee must actually be paid £2,500 or more a month or at least 80% of their reference salary (normally their regular monthly average salary for 2019/20 or the actual salary payment for the corresponding month in 2019/20).

HMRC has no power to pay a claim that does not meet these requirements. It should particularly be noted that the claim must reimburse a payment. That means that the salary needs to be paid before the claim is paid. The Government clearly envisaged that an employer would continue to pay furloughed employees as part of its normal payroll run. A lot of employers have not done this. HMRC accepts this has not always happened and has said that if the employee has not been paid they need to be paid once the claim has been submitted. The probability is that if this is not done but the employee is paid promptly once the money is received, HMRC is likely to take no action to recover the money, but this is not free from doubt.  Interestingly, the HMRC payment calculator allows you to calculate a furlough payment up to 14 days in advance of the end of the payroll period (which for a lot of businesses is the last working day of the month).  Accordingly, it would appear that HMRC is interpreting the law to allow businesses to make a claim in advance of making the payment to their employees so that they have the funds to do so.

Not only must the employee be paid, but tax and the employee’s NI needs to be deducted from the payment and paid over to HMRC in the normal way.

The HMRC guidance says that you can make a claim only if “you cannot maintain your current workforce because your operations have been severely affected by the Coronavirus”, although it goes on to say, “However all employers are eligible to claim under the scheme and the Government recognises different businesses will face different impacts from Coronavirus”. There is clearly a risk that an employer will have to repay the money if they make a claim, but cannot show that they suffered financially as a result of the Coronavirus lock down.

If a business has ample resources to pay furloughed employees without recourse to the scheme, there is clearly a risk that a claim under the scheme will be regarded as contrary to the exceptional purposes of the scheme.

Consideration also needs to be given to the potential reputational risk where a company has sufficient resources to survive to the end of June but makes a claim even so. An obvious example is Tottenham Hotspur Football Club which received a lot of adverse comment on social media when it said that it intended to furlough its ground staff, as a result of which it has abandoned its intention to make a claim and has adopted a different way of financing such costs.

If an employer has entered into an agreement with a furloughed employee that they will be paid only out of the scheme payment there is a risk that such a payment will not be considered to be a reimbursement at all.

Consideration needs to be given to when the payment to the employee is contractually due, as PAYE and NIC become payable when an employee becomes entitled to payment if that is before the date of actual payment. Entering the PAYE and NIC on the incorrect RTI return attracts the normal penalties for an incorrect return.

What next?

Please contact our Tax team if you have any questions regarding the Coronavirus Job Retention Scheme or any other issue. If you require HR support with the furlough process, please contact our HR Consultancy team.

You can keep up to date with the latest Coronavirus support on our COVID-19 page.

Please click here to view all articles relating to furlough and Coronavirus Job Retention Scheme guidance.