What you need to know about the Furlough scheme
The Coronavirus Job Retention Scheme was announced on Friday 20th March - just before we went into lockdown. Since then, it may feel like you’ve talked about little else - and much of that was due to the scant details which had been published.
Thankfully, guidance has now been updated several times since then, so here’s the rundown on what you need to know.
The Basics
The scheme allows employers to recover costs relating to employees who are not able to work. 80% of salary costs, plus the related costs of Employers National Insurance and the minimum Employer Pension contribution can be claimed under the scheme.
The scheme will be backdated to 1st March - and will run for 3 months, although this may be extended if required.
All employers are eligible to claim - so long as you have a payroll scheme which was up and running on or before 28th February 2020.
Who can you claim for?
You can claim for any employees who were on your payroll on 28th February 2020 who are now not able to work.
Any employment type can be claimed for - agency staff, part-time staff, flexible workers. If you had employees who were on your payroll on 28th February and have subsequently left, you can, if you choose, put them back on the payroll and furlough them.
You can claim for employees who have been TUPE’d after the 28th February if the succession rules apply.
You cannot claim for employees who are on reduced hours. This scheme only applies to employees who are not working.
In practice - this can lead to difficult decisions - who to furlough and who carries on working?
Directors - Can they be furloughed?
This is a question we have been asked a lot. The answer is YES - but, you may want to consider the implications.
The guidance states:
Where furloughed directors need to carry out particular duties to fulfil the statutory obligations … the may do so provided they do no more than would be reasonably judged necessary for that purpose, ie they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provide services to or on behalf of their company.
Salaried directors can be furloughed - but only for their salary. If a director is paid by dividend, this does not qualify. Very typically, directors salaries are low - perhaps around £900 per month. In practice, for a salary at that level, the Employers NI, pension contribution and 80% of gross salary is going to result in a claim of no more than £750 - £800 per month.
If you are the sole director of a company, you need to consider if you might earn more than you recover.
If you want to know more about the directors statutory duties - you can see these here https://bit.ly/2VwDS39
What pay can be included?
The recent update offered more advice on this. You can claim for:
Salaried pay
Regular overtime
Compulsory commission
You cannot claim for:
Tips
Non-contractual commission / bonuses
benefits in kind
Effectively - if the pay elements are contractual you should be able to claim for it.
If you have employees whose pay is variable - then you should claim for the higher of:
Pay for the same period last year
The average of pay for the last 12 months (or if the employee started within the last 12 months, the average pay since they started employment with you)
Record-keeping
You will need to keep scrupulous records - not only for the furlough calculation and claim, but also to make sure that you can demonstrate to others that you have met the appropriate requirements:
Record the agreement between you and your employees that you are planning to furlough staff. This record needs to be kept for five years.
If you need a template, ACAS has some really useful advice - and also a helpful template agreement.
Record the start date and end date of your employees furlough periods. You will need this to make the claim.
If your employee is part-time, has variable pay, or you are planning on furloughing for the minimum period of three weeks (part of a pay period) then record their normal working hours.
To make a claim
This can be done by you - so long as you have a PAYE online account. Chances are if you set up the PAYE scheme online, you have an account. You might know this as your Business Tax account. Get prepared - log in now and check that you can sign in, and if not, then re-set the password, or if you need to, apply for a PAYE online account.
If you have a payroll agent, they may be able to make the claim for you. Get prepared and ask now. If they are ‘File Only’ then they cannot do this. We are authorised agents for all of our payroll clients, and are confirming with all of our clients if they would prefer us to do this on their behalf.
To claim, you will need:
PAYE reference number
Details of the employee being furloughed, including dates of furlough and NI numbers
Self Asssesment UTR or Corporation Tax UTR or Company Registration Number
Claim period
Amount claimed
Bank account details
Contact details
When can you make a claim?
HMRC confirmed last week that the portal should be open for claims from Monday 20th April - and should be able to handle 450,000 claims per hour. There will clearly be a very heavy demand for this service, so you may need to allow for time to get the claim correctly submitted.
Payouts are expected to start on 30th April for successful claimants.
If you have any queries about this - or if you would like to discuss your claim, please do get in touch with a member of the team.
