27 Mar 2020

Employment

Furloughing – Everything you need to know…

The Government has now published further detailed guidance on the Furlough Scheme. The main points are summarised within the article below. Full guidance from the Government can be found here 

How will the scheme work?

The Scheme is slightly more generous that anticipated,  in that you can pay salary of 80% up to £2500 ie based on salaries of £3125 and above plus 80% of NICs and 3% employer pension contributions on that amount. The Guidance indicates that Employers’ NICs and auto-enrolment pensions are not taken in to account in the £2500 cap. Employers can therefore need to  pay the minimum 80%  of gross salary to the employee up to the maximum sum payable of £2500 and should also receive a 80% subsidy on employers’ NICs and auto enrolment contributions on payment of Furlough Salary up to £2500. Employers can be more generous for employee above the cap but will not receive a subsidy and can also be more generous to those employees beneath the cap but again will not receive a subsidy on any enhanced payments.

Employers need to make a claim for wage costs through this scheme.

You will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included.

At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per month. An employer can also choose to top up an employee’s salary beyond this but is not obliged to under this scheme.

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

 Employer National Insurance and Pension Contributions

All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees.

You can claim a grant from HMRC to cover wages for a furloughed employee, equal to the lower of 80% of an employee’s regular salary or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on paying those wages.

You can choose to provide top-up salary in addition to the grant. Employer National Insurance Contributions and automatic enrolment contribution on any additional top-up salary will not be funded through this scheme. Nor will any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income above the lower limit of qualifying earnings (which is £512 per month until 5th April and will be £520 per month from 6th April 2020 onwards).

What you’ll need to make a claim

Employers should discuss with their staff and make any changes to the employment contract by agreement. Employers may need to seek legal advice on the process. If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.

To claim, you will need:

  • 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.

Tax Treatment of the Coronavirus Job Retention Grant

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.

Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.

 Warning

The Scheme is explicit that employees’ employment rights are not superceded by the Scheme and unilateral imposition of Furlough Leave can expose employers to claims of constructive dismissal and/ or unlawful deductions from wages for any shortfall between the employee’s full salary and the amount actually paid to employee. Clearly there is some further fine detail set out in the Guidance not covered in this note. For urgent advice and assistance on Furlough Leave please contact our Head of Employment Daniel Wilde on 01633 244233, who can provide bespoke advice tailored to the needs of your business.

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