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Perhaps the most substantial support offered by the Government to date in response to the Covid-19 Pandemic is the Coronavirus Job Retention Scheme, which helps employers meet the cost of paying their employees’ wages.

For changes to the furlough scheme from 1 July 2020, including flexible furlough, please read our seperate guidance.

(Last updated 02.06.20)

As a summary, all UK businesses will be eligible for a grant of up to 80% of an employee’s wage costs (up to £2,500 per month) where designated as a “furloughed worker” (not permanently laid off).  To benefit, these workers must do NO WORK AT ALL FOR THE EMPLOYER, EVEN FROM HOME, PRIOR TO 1 JULY.  From that date they can return to work part time if agreed between the employer and employee and the employer will still be able to benefit from the grant for the periods they are not working.

Employers wishing to utilise the JRS should identify workers to furlough and collate the information about their wages. Broadly the process is as follows: 

  • Identify workers to furlough (those that can do no work, even from home) 

  • Work out the grant available under the scheme for these employees (and consider whether to top up the wages of those employees in addition to the 80%/£2,500 claim cap).  

  • Notify those workers in writing, and ideally get written agreement from them confirming they accept their new status and, if applicable, reduced salary. 
  • Process wage payments via payroll as normal.

  • Claim the JRS grant (further details are yet to be announced) 

We have set out below a summary of the main rules based on what we know so far. 

Update on 2nd June – scheme extended 

The Chancellor announced on 12th May that the scheme will be extended to 31 October, bringing a degree of certainty to many employers that have used the scheme to protect jobs.   On 29th May he gave further details of how the scheme will operate beyond 30th June, and confirmed that the scheme will end on 31st October.   

From 1st July the scheme will pay grants in respect of employees who return to work for part of their usual working hours.  The grant will continue to be based upon the non-worked hours at 80% of eligible earnings and the £2,500 cap will be reduced proportionately.  Thus employers can bring employees back to work part-time and they will still be reimbursed for costs related to the time when the employee is not working on the same basis as currently applies.  Under the existing rules if employees provide any services to or on behalf of their employer then they cannot be included in a grant claim. 

Connected with this, no new employees will be eligible for the scheme from 1st July.  HMRC have initially stated that this means that since the minimum period of furlough is 3 weeks then the final date on which an employee can be placed under furlough for the first time is 10th June.  However, clarification is needed of precisely how this condition will apply and whether it only relates to claims in respect of pay from 1st July or whether the rules will be changed from 10th June.  

From August there will be a phased reduction in the amount of grant that can be claimed for furloughed employees.  From August the grant will no longer cover employers’ National Insurance contributions or pension contributions.  The Treasury estimates that, if employees are being paid their full wages, for the average claim this would represent 5% of those employment costs.  In September the rate of wage reimbursement will drop from 80% to 70%, and the £2,500 cap will be correspondingly reduced.  In October this rate will drop to 60% with a further corresponding reduction in the cap.  

It is also anticipated that, from August, those on furlough will have more flexibility to do some work for their employers, but we will update our summary once we know more. 

A summary of the key changes is: 

  • From 1 July the scheme will allow part-time working, but staff must have been furloughed by 10 June to be eligible.  The scheme will close on 30 June to new furloughed employees. 
  • Claims for the period to 30 June will need to be made by 31 July. 
  • From 1 July, claim periods will no longer be able to overlap months.   
  • From 1 August, the furlough scheme will no longer cover employers NIC or pension contributions. 
  • From September, employers will be asked to contribute at least 10% to furloughed wages, with 70% covered by the grant. 
  • From October, employers will be asked to contribute at least 20% to furloughed wages, with 60% covered by the grant. 
  • The scheme will end on 31 October 


How do I make a claim? 

Employers will need to submit a return to HMRC under a new system.  The claim portal opened on 20th April, and claims are being paid in around 4-6 days.

Employers should make their claim using the amounts processed via payroll - either shortly before or during running payroll. Claims cover a period from 1 March where employees have already been furloughed from that date. 

The Guidance confirms that, if appropriate, employees wages should be reduced to 80% of their salary within the payroll before they are paid.

To claim, employers will need: 

  • employer PAYE reference number
  • the number of employees being furloughed 
  • National Insurance Numbers for the employees being furloughed 
  • Names of the employees being furloughed 
  • Payroll/works number for the employees being furloughed 
  • their Self Assessment Unique Taxpayer Reference or Corporation Tax Unique Taxpayer Reference or Company Registration Number 
  • the claim period (start and end date) 
  • amount claimed (subject to the minimum length of furloughing for each employee of 3 consecutive weeks) 
  • bank account number and sort code 
  • contact name 
  • phone number 

Guidance has been published by HMRC to help calculate the grant available, which highlights that there are a significant level of nuances to consider when making the claims.  There is also a smaller Step by Step guide published by HMRC.   

The Government have announced that, if employers use an agent who is authorised to act for PAYE purposes, they will be able to make a claim on the employer’s behalf. 

However, if businesses use a file-only agent (who files an RTI return but doesn’t act for the business in other matters), the agent won’t be able to make a claim and the business will need to make the claim. 

We therefore recommend all businesses check that they have access to the Government Gateway and have an appointed PAYE agent.   


How to access Government Gateway and check an agent is appointed 

Businesses will need to either make a claim via their Government Gateway, or have an authorised PAYE agent in place who will be able to make the claim for them. 

  • Government Gateway – accessed here.  Businesses should have one already set up, and there are a series of options to “request a new” password.  We recommend businesses log in ASAP to ensure they have access. 
  • PAYE Agent authorisation – If businesses want their adviser to make a claim for them, they will need to ensure the adviser has agent authorisation.  Businesses can check if they have an approved agent by signing in to their Government Gateway, for PAYE and following these instructions: 
    • Click on “Manage account” at the top of the Government Gateway landing page. 
    • Scroll to where it says “Tax Agents” and click on the “Add, review or Change Tax Agents” link 
    • Scroll to the PAYE for Employers” section, which should be there, and click “manage”.  This will allow you to check who is appointed as agents.    


Which employers can benefit? 

The scheme is open to all UK employers that had created and started a PAYE payroll scheme on or before 19 March 2020 – this includes the public sector, Local Authorities and charities.  According to the Government, “it is designed to support employers whose operations have been severely affected by Covid-19”.  However, the guidance also says “however, all employers are eligible to claim under the scheme and the government recognises different businesses will face different impacts from coronavirus.   

We read this to mean that all businesses can claim under the scheme.   


How does it work - general 

Employers will need to designate affected employees as ‘furloughed workers’, and notify employees of this change in writing. This would mean that the employee is kept on the employer’s payroll, rather than being made redundant, so the Employee will remain employed whilst furloughed. The documentation to furlough a worker must be kept for 5 years.  


What does “furloughed” mean? 

Furloughed, in general terms, means “temporary leave of absence from work”.  This applies to workers who have been asked to stop working due to a lack of work available but have not been made redundant.  


Who can be furloughed?  

To qualify, employees must do no work for the employer during the period of furlough.  Specific cases that can qualify include: 

  • Individuals who have been told to shield themselves  
  • Individuals who are “carers” (including looking after children)  
  • Employees on zero hours, part -time or full -time contracts 
  • Agency workers 
  • Salaried partners of LLPs 
  • Directors and office holders (paid via PAYE) 
  • Employees on National Minimum Wage (the guidance confirms that paying these individuals 80% does not breach NMW regulations, as those individuals are doing no work, unless they are asked to do training).    

As announced on 15th April 2020, employers can now claim for furloughed employees that were employed and on their PAYE payroll on or before 19 March 2020. This means that the employee must have been notified to HMRC through an RTI submission notifying payment in respect of that employee on or before 19 March 2020 (which is only likely to extend it to include weekly paid employees that started in early March 2020). 


When does furlough start? 

The guidance indicates that an employee can be furloughed from the date they had no work to perform (the date they are notified is not important).  This means that if the decision is taken from 31 March that an employee will be placed on furlough from 6 April, the relevant period starts on 6 April.  However it is not entirely clear if this is intended to apply the other way around, but we take this to mean that, if an employee is sent home with no work on 31 March, but is not notified they are on furlough until 6 April, the grant can be claimed from 31 March.     


What written evidence do i need as an employer? 

Employers should obtain each employee’s agreement of furlough status and effective start date, and reduction in pay if applicable, and confirm this in writing - and retain this for 5 years.  Ideally this should be in the form of a letter. 

The letter should include the start date, a link to the Government guidance for employees, and a statement that the worker is being furloughed and must do no work from home.  It is envisaged that most employees will accept this where there is little alternative, and they may not be much (if any) worse off. Employers should point their furloughed workers to Government guidance.

If employers are in any doubt as to the legal aspects of the contractual consequences of furloughing employees they should consult a lawyer.  These provisions do not alter employment law or automatically override employment contracts. 


How much will be covered by the scheme? 

The government will provide a grant of up to 80% of furloughed employees’ wage costs, up to a cap of £2,500 per
employee, back dated to 1 March.  Employers can choose whether to top up part or all of the difference or not (subject to other employment law considerations), but must pay the minimum amount of 80%, or £2,500, to qualify for the grant. 

Following the announcements on 29 May, employers will be asked to contribute towards more of their employees wages from August 2020 as outlined above.

The grant will also cover (in addition to the underlying basic wage) the Employer’s NIC and the minimum employer pension contributions under auto enrolment (until 1 August 2020).  However, it should be noted that employees are still entitled to other benefits that they enjoy under their employment terms, which are expected to accrue as normal during the furloughed period.


How is the grant calculated? 

  • For full time and part time salaried employees, the employees’ actual salary before tax at 28 February should be used to calculate the 80%. 

  • For employees whose pay varies, if the employee has been employed for a full twelve months prior to the claim, the employer can claim for the higher of: 

    • the same month’s earning from the previous year 

    • average monthly earnings from the 2019-20 tax year 

If the employee has been employed for less than a year, the employer can claim for an average of their monthly earnings since they started work. 

If the employee only started in February 2020, use a pro-rata for their earnings so far to claim. 

  • Fees, commission and bonuses should not be included when calculating the wages. 

  • The latest guidance states employers “can claim for any regular payments you are obliged to pay your employees. This includes wages, past overtime, fees and compulsory commission payments~”.  Compulsory commission payments are those from previous sales that have not yet been paid to the employee.  We read this to mean that payments for overtime previously worked which is now being paid can be included in the wage calculations, and it implies that regular overtime may be able to be regarded as regular earnings (although this is not entirely clear yet).
  • At a minimum, employers must pay their employee the lower of 80% of their regular wage or £2,500 per monthi.e. the amount on which their claim is basedbut an employer can also choose to top up an employee’s salary beyond this although this is not a requirement of the scheme.  If an employer does not continue to pay the employee’s full salary this will be a change in their terms that must be agreed by the employee. 


Can you furlough workers for a period of time and then set them on again? 

Individuals must be furloughed for a minimum period of 3 weeks.  However, the guidance says employees can be furloughed multiple times, but each separate instance must be for a minimum period of 3 consecutive weeks.  This appears to facilitate an employee returning to work for one week a month to perform monthly administrative and processing tasks. 


When will I receive the grant? 

Claims will be paid in around 4-6 days after submissiom to HMRC. 


Do I need to pay employees before claiming the grant? 

Employers will need to continue to process salary through the payroll as normal. 

Wages of furloughed employees will be subject to Income Tax and National Insurance as usual, as well as pensions auto enrolment contributions (unless the employee has opted out). 


What can I do in the meantime until my grant is available? 

Depending on the current position of the company, this may be a difficult time. However, the government recently announced that VAT payments due between 20 March 2020 and 30 June 2020 would be automatically postponed until the end of the 20/21 tax year, improving short term cash flow. 

In addition, HMRC have extended their existing offering of Time To Pay arrangements which gives employers more time to pay their Corporation Tax and PAYE liabilities. For more information, see our blog here. 

Employers may also be eligible for other grants and can apply for the CBILS loan scheme.   


Do I need to engage a lawyer? 

Changing the status of an employee is still subject to employment law. These provisions do not give employers the unilateral right to change employment terms, they are just to provide financial support when they do.  We would recommend that employers contact a suitably qualified employment lawyer to seek advice on the contractual implications and requirements of this to mitigate against future legal claims (and depending on the industry it may be preferable to consult relevant representative bodies or trade unions).   

Clients who have subscribed to our Professional Fee Protection service, which covers professional fees in the event of an HMRC investigation, also have unlimited access to a legal support helpline. The team are fully briefed to support legal questions related to COVID-19 and help guide you through this difficult period. 

However, in any circumstance where this may not be a suitable option, ACAS (advisory, conciliation and arbitration service) have created a ‘furlough letter template’ which is free to download, and amend accordingly to inform employees of their furlough status. This can be found through the link on the ACAS website: 


Can the scheme cover Directors? 

  • It has been confirmed that the scheme can cover Directors, providing they only perform their statutory duties for the company.  The guidance says Directors should not do any work that would “generate commercial revenue” or that would “provide services to or on behalf of the company”.  Our reading of this is that unless the Director is at home doing no work for the company, it will be difficult to be included in the scheme.  In any case, the grant would be limited to salary paid via payroll, which in many instances for a Director Shareholder would be relatively small. 
  • The guidance suggests that, if a company’s board of directors decide to furlough any of their directors, this should be formally documented as a company decision and communicated in writing

  • Directors paid via an annual payroll (i.e. one payment each year) may not qualify, if they received their annual payroll in the 19/20 tax year after 19th March 2020.  This is because they were not subject to an RTI submitted to HMRC on or before 19th March 2020.   

Can I increase salary to benefit? 

No, employees must have been subject to an employment contract and employed at 28 February.  As detailed above, the claim must be based on historical salaries as reported for PAYE purposes. 


Can an employee work from home, or be on reduced hours, and be a furloughed worker? 

Until 30 June, furloughed workers must not do any work for their employer in order to qualify for the scheme.  From 1 July employers will be able to bring employees back to work part-time whilst continuing to claim for the period they are not working. 


What about employees with more than one job? 

The guidance says “If your employee has more than one employer they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually”.  The guidance has confirmed “if contractually allowed, your employees are permitted to work for another employer whilst you have placed them on furlough. 


What about employees taken on after 28 February? 

Employees hired after 28 February 2020 cannot be furloughed under the scheme, unless they were included in an RTI submitted to HMRC on or before 19th March 2020.


What about those laid off before the announcements? 

The scheme also covers employees who were made redundant after 28 February 2020, if they are re-hired by their employer.  The Government is encouraging employers to re-hire these individuals. 


What is the interaction with unpaid leave and maternity leave?

For those on maternity leave etc employers should continue to comply with the statutory maternity leave regulations.  However, if an employer offers enhanced (earnings related) contractual pay, the element above statutory levels can be included as wage costs for furlough purposes.  


How does it interact with Statutory Sick Pay? 

Previously it was suggested that individuals on sick leave would only be entitled to Statutory Sick Pay and could not be furloughed.  However, guidance issued 9th April states that if “employers want to furlough employees for business reasons and they are currently off sick, they are eligible to do so the employee should no longer receive sick pay and would be classified as a furloughed employee”.  The guidance also states that if an employee becomes sick whilst on furlough, they should be paid at least Statutory Sick Pay.  

Employees who are shielding due to Coronavirus can be furloughed.   

However, HMRC have made it clear that employees should not be furloughed just because they are off sick.  There should be a genuine business reason to furlough an employee.   


How does it interact with Holiday Pay? 

It has been announced that furloughed employees continue to accrue leave as per their employment contract, but that employees can take holiday whilst on furlough.  If a furloughed employee takes holiday, the employer should pay the employee their usual holiday pay, which may be over and above the furlough grant.   

If an employee usually works bank holidays then the employer can agree that this is included in the grant payment. If the employee usually takes the bank holiday as leave then the employer would either have to top up their usual holiday pay, or give the employee a day of holiday in lieu. 


Can I incorporate my sole trader business / partnership to benefit from this support? 

No. The scheme only applies to individuals on a formal payroll on 28 February 2020. 


How does it interact with pension contributions?

The Government has included some basic information surrounding how the JRS will work alongside the minimum contributions required under Auto Enrolment legislation.

The level of contribution covered by the grant will be the minimum 3% employer contributions calculated based upon the employee’s furloughed salary (capped at £2,500 per month, rather than on their ordinary salary). It will not cover any additional contributions that the employer pays above these limits, nor any contribution in relation to any enhanced salary paid over and above the 80% limit.

The Government will only cover the pension contribution if the employee has not opted out. If an employee opts out during the furloughed period, the employer contributions, as they would ordinarily, will cease.

There are a number of grey areas that the Government needs to clarify, notably how salary exchange arrangements may be dealt with, along with the fact that many businesses utilise contribution bases other than Qualifying Earnings (where their liability may indeed be higher than the 3% of Qualifying Earnings). We expect further details will be provided in due course, before the scheme goes live.


Other points 

  • The scheme is open to companies in administration, and can be accessed by administrators 

  • The grant will be taxable in the hands of the employer, as it is designed to offset employment wage costs (this means there will be neither a profit or a loss on the amount covered by grant, so in effect, no tax will arise on the grant).  

  • Apprentices can qualify for furlough, but subject to the Apprenticeship minimum wage.

  • Employees that were TUPEd from one employer to another may be able to be furloughed.  We recommend seeking specific advice on this (please feel free to get in touch). 


Please do get in touch with your normal Shorts contact to talk things through, or one of our Covid-19 support coordinators (David RobinsonScott Burkinshaw or Martin Dean). 

Please be assured that we are ready to help.

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David Robinson

As a Tax Partner, I advise clients on all aspects of UK tax, ranging from business taxes, transactions and private client matters, helping to achieve the objectives and aspirations of businesses and their owners.

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