The information on this page was last updated on 16th June 2020.
HMRC have now provided additional information in respect of the extension of the Coronavirus Job Retention Scheme (CJRS) furlough scheme, applicable from the 1st July, to allow for claims in respect of previously furloughed employees coming back to work on a flexible furlough part time basis.
HMRC have also released further information regarding penalties for businesses that are subsequently identified as having submitted incorrect claims under the Scheme.
Who can you claim for after the 1st July?
From 1 July 2020 onwards, only employees that you have previously included on a CJRS furlough grant claim will be eligible for further grants under the Scheme. This means an employee must have previously been furloughed for at least 3 consecutive weeks before 30 June. Therefore, to qualify for inclusion within the scheme after 1 July 2020, the last day an employee could have started furlough for the first time was 10 June. The only exceptions to this rule are employees returning from statutory maternity, shared parental, adoption, paternity or parental bereavement leave. If they have been on statutory leave, if they return to work before 31 October 2020, they can be furloughed.
From 1st July 2020, businesses using the furlough scheme will have the flexibility to bring previously furloughed employees back to work part time. Employers will have to meet the full cost of the salary for the part time work undertaken, including Employers Class 1 NIC and Employers minimum pension contributions, and will be able to claim the furlough grant for 80% of their employees’ wages, including the relevant Class 1 NIC and pension contributions, for any of the employees’ normal hours that are not worked and are furlough hours.
Employers will need to decide the hours and shift patterns their employees will work on their return to part time work, and this will need to be confirmed in writing in advance. Employees can work as much or as little as the business needs, and there is no minimum weekly time limit that they can furlough staff for. Any working hours agreed between a business and their employee must cover at least one week and be confirmed to the employee in writing, as this is a further temporary variation to the employee’s normal contractual terms and conditions of employment. Each time there is a change to employment terms and conditions, due to furloughing or returning from furlough, or part time furlough, the change must be confirmed in writing.
When claiming the CJRS grant for furloughed hours, the employer will need to report and claim for a minimum period of a week. Employers can still choose to make claims for longer periods, so that it is in line with their payroll reporting. Employers will be required to submit to HMRC, via the CJRS claim portal data, details both the usual hours an employee would be expected to work in a claim period and the actual hours worked under the flexible furlough arrangement.
If employees are unable to return to work, or employers do not have work for them, they can remain on full time furlough, and the employer can continue to claim the CJRS grant for their full hours under the existing rules.
From 1 July 2020, the number of furloughed employees in any claim cannot exceed the maximum number included in any previous claim made. For example, if the previous claims from March 2020 have been for 30 employees on furlough, then 50 for April, then 56 for May, then 40 for June, from 1 July any claim made for a particular claim period, including full and part time flexible furlough is limited to 56 employees. However, any employees returning from statutory maternity leave etc, can be furloughed in addition.
When can a claim be made after 30 June?
There is no maximum length for claim periods that end on or before 30 June, but all claims for furlough claims to 30 June 2020 must be made via the HMRC portal by 31 July 2020.
From 1 July 2020, claims periods cannot overlap calendar months. Where employees are furloughed in June continue to be furloughed in July, separate claims will need to be submitted to cover the days in June and the days in July, even if the employees are furloughed continuously without gaps.
Claim periods starting on or after 1 July, must start and end within the same calendar month and must last at least 7 days at a time. You can only claim for a period of fewer than 7 days if the period you are claiming for includes either the first or last days of the calendar month, where the continuous furlough period spans more than one calendar month.
If possible, you should match your claim period to the dates you process your payroll. You can still only make one claim for any claim period, so you must include all your fully furloughed and flexibly furloughed employees in one claim even if you pay them at different times, (i.e. on separate weekly and monthly payrolls). If you make more than one claim in a calendar month, your subsequent claim cannot overlap with any previous claim that you make. Where employees have been furloughed and/or flexibly furloughed continuously, the claim periods must follow on from each other with no gaps in between the dates.
You can claim before, during or after you process your payroll; you can usually make your claim up to 14 days before your claim period end date, and do not have to wait until the end of a claim period to make your claim. Claims for furlough periods after 30 June can be made from 1 July.
When claiming for employees who are flexibly furloughed you should not submit a claim until you are sure of the exact number of hours the employee will have worked during the claim period. If you claim in advance of the flexible furlough and the employee works for more hours than you anticipated, you will have to pay the overclaimed grant back to HMRC. Going forwards, you may, therefore, choose to submit your claim after the claim period.
How should a claim be calculated?
We have previously provided detailed guidance on how to calculate a claim, In this update we are only providing information relating to the additional issues that you need to consider in relation to flexible furloughed employees, together with a further reminder of the changes coming into effect from the 1st August.
From 1 July, your employees can return to work part time and still be furloughed for the rest of the time they would normally work for you. If this is the case, you must work out your employee’s usual and furloughed hours before you can start calculating your claim.
From 1 July 2020, you will:
- only be able to claim for employees who have previously been furloughed for at least 3 consecutive weeks between 1 March 2020 and 30 June
- be able to flexibly furlough employees – this means you can bring your furloughed employees back to work part time
- be able to claim the furlough grant for the hours your flexibly furloughed employees do not work, compared to the hours they would normally have worked in that period
You cannot claim for:
- your employees’ wages for any time they spend working, or any associated NIC or pension contributions on these wages
- any pension contributions you make that are above the minimum employer contribution
- top up wages that you may choose to pay for furlough days, and the additional NIC or pension contributions associated with top up pay
Employees must not work or provide any services for the business during hours which they are recorded as being on furlough, even if they receive a top-up wage.
How to work out the maximum wage amount on flexible furlough
The maximum furlough claim remains 80% of normal wages capped at £2,500 a month, or £576.92 a week.
Before the 1st July this was the maximum amount you could claim for wages under the scheme. From 1st July, the maximum furlough cap for furlough pay is still in place, but it will be calculated on the equivalent daily cap for employees who start furlough part way through the claim period. You will need to work out 80% of your employee’s usual wage for the furlough calculation as before, and then apply the daily furlough pay cap furlough if 80% of monthly wages is above £2,500 per month. The daily maximum furlough cap varies depending on the number of calendar days in the month. For July and August the daily furlough cap is £80.65 per day (£2500/31 days = £80.65), for September it is £83.34 per day (£2,500/31 days = £83.34) etc.
To calculate the furlough pay for flexible furlough, the following steps need to be taken:
- As before, you will need to work out 80% of your employee’s usual wages to determine how much you have to pay your employees for the time they are furloughed and what you can claim under the CJRS grant scheme.
- The minimum furlough pay is the lesser of either:
- 80% of their usual wage
- the maximum furlough wage amount (£2,500 per month, pro rata to a daily amount if applicable)
- Multiply by the furlough hours in the claim period
- Divide by the usual number of working hours in the claim period
HMRC have provided an example of how to calculate minimum furlough pay for an employee who is flexibly furloughed. (section 3.8).
Information required for HMRC portal claim for flexible furloughed employees
When claiming for employees who are flexibly furloughed, you’ll need to have agreed the part time working/furlough arrangement with the employee in writing in advance of the start of the flexible arrangements, and each time there is a change to working patterns this also needs written notification.
In addition to the previous information provided for furloughed employees i.e.:
- each employee’s National Insurance number
- each employee’s payroll or employee number (optional)
- the start date and end date of the claim
- the full amounts that you’re claiming for including:
- employee wages
- employer National Insurance contributions (for claims up to 31 July)
- employer minimum pension contributions (for claims up to 31 July)
for flexibly furloughed employees, for each claim period, you will also need to provide:
- the number of usual hours your employee would work in the claim period
- the number of hours your employee has or will work in the claim period
- the number of furloughed hours your employee has been or will be furloughed in the claim period.
How to claim Employers Class 1 NIC claim periods from 1 July to 31 July 2020
You should continue to calculate the Employer NICs that you need to pay via the payroll in the normal way.
For claim periods between 1 July 2020 and 31 July 2020, you will still need to work out how much you can claim towards these costs for the furlough pay. You should do this calculation separately for each pay period that falls into your claim period. You cannot claim a higher amount than the Employer NICs that is due.
Before you calculate the amount you can claim, for flexible furloughed employees you will first need to adjust the amount of the relevant secondary NICs threshold so that the relevant proportion for the furlough pay is included in the NIC calculation for the furlough.
- Start with Secondary NIC threshold (£732 per month)
- Divide by number of days in pay period
- Multiply by number of days in furlough claim
- Divide by usual number of working hours in flexible furlough claim
- Multiply by number of furloughed hours in flexible furlough claim
To calculate the Employers NIC that can be claimed for the flexible furlough grant:
- Start with the amount of furlough grant being claimed for the employees furlough wages
- Deduct the adjusted secondary NIC threshold (calculated as per above)
- Multiply by 13.8%
HMRC have provided an example of calculating the grant for employer NICs costs for an employee who is flexibly furloughed (for claims from 1 July to 31 July 2020). (Section 4.5)
How to calculate your claim for Employer pension contributions on Furlough Grant – claim periods from 1 July to 31 July 2020
For claims between 1 July 2020 and 31 July 2020, you will be able to claim the minimum employer pension contributions on the furlough grant for the hours employees are furloughed. You should do this calculation separately for each pay period that falls into your claim period. You cannot claim for more than you actually contribute to your employee’s pension, and as before claims are limited to the minimum auto enrollment pension contributions for employers.
Before you can claim, you will need to adjust the amount of the relevant Lower Level of Qualifying Earnings (LLQE), £520 per month for 2020/21/ tax year.
- Start with the relevant LLQE that corresponds to the pay period (£520 per month/ £120 pw in 2020/21).
- Divide by the number of calendar days in the pay period.
- Multiply by the number of calendar days in the furlough or part-time furlough claim.
If your employee is flexibly furloughed you must also:
- Divide by the number of usual working hours in the flexible furlough claim.
- Multiply by the number of furloughed hours in the flexible furlough claim.
Next you will need to use the adjusted LLQE to calculate the amount of your grant.
- Start with the amount you’re claiming for the employee’s furlough wages.
- Deduct the adjusted LLQE.
- Multiply by 3%.
You must not claim more towards pension contributions than you have paid into your employee’s pension.
HMRC have provided examples pension scheme contributions calculations
- example of calculating the grant for employer pension contributions for an employee who is fully furloughed (for claims from 1 July 2020 to 31 July 2020). (Section 5.4)
- example of calculating the grant for employer pension contributions for an employee who is flexibly furloughed (for claims from 1 July 2020 to 31 July 2020). (Section 5.5)
- example of calculating the grant for employer pension contributions for an employee who is flexibly furloughed where the flexible furlough claim period does not align with the employee’s pay period (for claims from 1 July 2020 to 31 July 2020). (Section 5.6)
Changes to the CJRS Furlough Scheme claims from 1 August 2020
From 1 August 2020, employers can continue to claim via the HMRC portal the full cost of the 80% furlough pay for employees, both those on full time furlough and flexible furlough.
However, the associated costs of Employers NIC and Employers pension contributions on furlough pay can no longer be claimed and will be costs borne by the employer. Only the furlough pay itself can be claimed back from HMRC.
Changes to the CJRS Furlough Scheme claims from 1 September 2020
From 1 September, in addition to meeting all Employer NIC and pension costs on furlough pay, employers will also be required to contribute towards the cost of the furloughed employees’ furlough wages. The furloughed employees must still continue to receive at least 80% of their wages for the time they are on furlough, but the employer has to meet the cost of 10% of those furloughed wages, and can only claim back 70% of the calculated furlough pay via the HMRC portal.
From 1 September 2020, employers will need to calculate the grant claim amount as follows:
- Start with the amount of furlough pay as calculated under the CJRS furlough pay scheme
- Divide by 80
- Multiply by 70
Changes from 1 October
From 1 October 2020, in addition to meeting all Employer NIC and pension costs on furlough pay, the required employer contribution to the furlough pay is 20%. The employee will still continue to receive the full 80% of furlough pay when on furlough, but the employer can only claim back 60% of the furlough pay via the HMRC portal. Therefore, the last step in the portal grant claim detailed above will be multiply by 60.
HMRC consultation in respect of recovering tax, and imposing penalties in respect of CJRS claims
HMRC have stated at the outset, and have recently reinforced, that they will be retrospectively reviewing furlough claims made. Where employers have overclaimed they will need to make repayments to HMRC. HMRC have confirmed that employers should keep all documentation relating to furlough payments for a minimum of 6 tax years. This includes: evidence of the employee being eligible for furlough; evidence that proper procedures were followed when furloughing staff; details to evidence accuracy of the claims; and, evidence of the furlough pay being paid in full to the relevant employees. It is likely that going forward, HMRC will set up specific task forces to review compliance, and also include it in all future Employer Compliance Inspections.
HMRC have recently announced a consultation on the potential measures that they will take to recover amounts incorrectly claimed under CJRS, or where the claimed payment was not correctly used to pay furloughed employees.
As expected, the proposed legislation also gives HMRC powers to charge a penalty where a person deliberately makes an incorrect claim for a CJRS payment and/or deliberately does not use it for the costs it was intended to reimburse. The penalty will only apply if the person fails to notify HMRC about the situation within 30 days of the error arising, or 30 days after the Finance Bill receives Royal Assent if it arose before that.
The proposed legislation also gives HMRC powers to make a company officer jointly and severally liable for the Income Tax charge raised in relation to any CJRS payment to which the Company was not entitled, or to any CJRS payment which was never intended to be used to pay furloughed employee costs in certain circumstances. Those circumstances are where the officer is culpable for making a deliberate CJRS claim to which the company was not entitled. These powers apply where HMRC can meet certain tests showing there is a serious risk that the Company will be unable pay the Income Tax assessment.
Given the complexity of the CJRS Scheme, many employers are making inadvertent errors on their furlough grant claims, which will result in future compliance issues as HMRC seek settlement of overpayments claimed, with penalties and interest being charged. We strongly recommend that, to avoid any potential costly future intervention by HMRC, if you are at all uncertain about any aspect of your furlough claims, or would like confirmation that the basis of your claims is accurate, you should have an independent review undertaken.
If you would like details of how Smith Cooper can assist your business to manage this issues, please contact Laura Parr or Mick Verney in our Employment Tax team.Return to CJRS hub