Dear All
Following on from my earlier guidance, we have now received some clarity over what support is available for those employers and employees wanting to use the furlough system.
What furlough means
If your company has been affected by COVID-19 and your staff can’t work, then you can place them on furlough and claim a grant back from HMRC that covers 80% of their payroll costs to you.
Furlough would mean that any employees on this scheme CANNOT work within the business during this time.
However, a furloughed employee can undertake training during this time as long as it doesn’t provide services to, or generate income for the organisation.
What you can claim
You can claim for 80% of your employees gross salary + employers national insurance contributions + minimum employers pension contributions, or £,2500, whichever figure is the lower amount.
You cannot include salary sacrifice amounts or non-cash benefit in kind amounts in the salary you use to calculate the 80%.
You should use the salary at the 28 February 2020 as your basis for these calculations.
You will initially be able to make these claims for a period of three months.
Employees who’s pay varies
If your employees wages vary from month to month as a result of hours worked, and they have worked for you for 12 months or more then you can claim the higher of;
- Same months earnings from prior year
- Average monthly earnings for 2019/20 tax year
If they have been working for less than 12 months then claim for 80% of their average monthly earnings during the period they’ve been employed by you.
If the employee started in February 2020 then you will need to work out a pro-rata for their earnings so far and claim for 80% of that.
For those employees that are partly paid with overtime, commission or bonuses, you can only claim for regular payments you are obliged to pay your employees, i.e. it’s in their contract and you would have to pay them this even if they didn’t do any work for the month.
Contingent and discretionary payments or bonuses are not to be included.
Telling your employees
You will need to tell your employees in writing about their furlough as it will involve a change to their employment contract. This will also confirm their period of furlough for them.
I have a template letter that you can use so please let me know if you would like a copy.
Furlough periods
There is a minimum furlough period of three consecutive weeks. Employees can be furloughed multiple times but each period must be of three consecutive weeks. In reality, employees could be furloughed for three weeks of every month, work for one week and then go back into furlough.
Other points
Employees will still pay their tax and national insurance on their wages as normal. They will also still have all the same rights as working employees, such as SSP, Maternity / Paternity, rights against dismissal and redundancy pay.
If they are allowed to do so in their employment contract, employees can work for another employer during a period of furlough from you.
Employees can also be furloughed by multiple employers at the same time.
Do you qualify?
- You must have created and started a PAYE scheme on or before 28 February 2020
- You must have enrolled for PAYE online
- You must have a UK bank account
What this means is that, those small companies that pay a wage to their Directors under the required PAYE limit of £6,136 per year are not eligible to claim on this scheme as they are not required to operate a PAYE scheme.
Those Directors that do operate a PAYE scheme, i.e. having to run a payroll each month and sending RTI to HMRC are eligible to claim.
This will mean though that you can’t be operating within the business in order to grow or generate revenue. You will be allowed to complete statutory duties in line with Directorship but that is all.
What to do if you want to claim
Once the HMRC portal is up and running you will be able to submit your claims either shortly before or during the running of your payroll.
The information you will need will be;
- Your employers PAYE reference number (eg. 123/AB45678)
- The number of employees being furloughed
- The claim period (start and end date), you will be able to backdate to 01 March 2020 if applicable
- The amount claimed (unclear at the moment whether this will need to be total or per employee)
- Bank account and sort code
- Contact name
- Telephone number
What is also unclear at the moment is whether your agent can do this on your behalf or whether it’s something you will need to do as the employer.
You / your agent is also responsible for calculating the 80% you will need to claim.
HMRC will check the claim and if eligible will make a BACS payment directly to your bank account. They have also made it explicitly clear that they reserve the right to audit, in full, any claims you make.
You can also decide to pay the employee 100% of their wages which means this would cost the business the 20% not covered by the grant.
If you have any queries or would like to discuss anything included in the above, please don’t hesitate to get in touch.
Kind regards
Laura