Further changes to the Coronavirus Job Retention Scheme and what it means for your business
The Chancellor, Rishi Sunak made further announcements on the phased changes to the Coronavirus Job Retention Scheme (CJRS) at the end of last week.
CJRS is the key pillar of the support for employment which has been provided by the Government. As of midnight on 31 May 2020, the scheme had been used by 1.1 million employers, to protect around 8.7 million jobs and the total value of claims made was £17.5 billion.
In summary, the key changes announced were:
- The scheme closes to new entrant employers on 30 June 2020. Therefore, employers who have not used CJRS to fund furloughed staff between March and June 2020 will not be able seek support under CJRS for costs of furloughed staff incurred from 1 July 2020 onwards.
- In June and July the Government will continue to pay 80% of wages of furloughed staff as a taxable grant, up to a maximum grant of £2,500, plus an additional taxable grant for the associated Employers NI and pension contributions.
- In July the new “Flexible Furloughing” mechanism will be brought into effect whereby a business will be able to agree that a furloughed employee can be brought back into the business on a part time basis.
- In August, the tapering of grant support starts – so from 1 August 2020 the government will not pay the grant amounts covering Employers’ NI and Pension for furloughed employees.
- From 1 September 2020, the level of taxable grant support the Government will provide to employers for furloughed employees falls again to 70% of wages (i.e. up to a maximum of £2,190). Employers must pay the balance of 10% so that when the contributions from the Government and the employer are combined, the furloughed employees are still receiving the same amount under the tapered CJRS scheme as they were previously (in, for example, June and July 2020, when calculated on a full time basis).
- In October, the level of support from the Government falls further to 60% of wages (i.e. to a maximum of £1,875). Employers must pay the balance of 20% so that when the contributions from the Government and the employer are combined, the furloughed employees are still receiving the same amount under the tapered CJRS scheme as they were previously (in, for example, June and July 2020, when calculated on a full time basis).
- HMRC have confirmed the basis on which the grant will be taxable, so that it is clear that businesses will either treat the grant as taxable income or as a reduction in the staff cost they have incurred (the staff costs would have been tax deductible expenses).
- HMRC have also confirmed that they are bringing forward legislation which enables them to recover in full any amounts of CJRS grants which have been claimed by employers where the basis of entitlement is flawed (for example for employees who were not properly furloughed or where the calculation basis is incorrect).
- HMRC have also confirmed that they will have the power to issue financial penalties to employers who have made incorrect CJRS claims where the basis of the claims being incorrect was a deliberate act by the employer.
As the changes to CJRS are extensive and the original CJRS scheme was originally mandated to last until 30 June 2020, this will require the Treasury to legislate for a new scheme from 1 July. As the current legislation runs out on 30 June, claims for the period up to 30 of June must be filed by 31 July 2020 and it will not be possible to file “overlapping” claims which straddle between June and July.
Further guidance on flexible furloughing and how employers should calculate claims will be published on 12 June.
Further details on the key changes
We have summarised further details on the key changes and how this will affect your business.
- Employers who have not yet claimed must make a claim before 30 June to be eligible to continue to claim from 1 July.
- Employees who have not yet been claimed for must begin their first period of furlough on 10 June for a three-week period to be complete by 30 June. We understand that it is intended that those employees that have been claimed for prior to 10 June and have returned to work can be included in a claim for 1 July as they have already been furloughed.
- Flexible furloughing will start a month earlier than expected on 1 July. People will be able to be furloughed for as little as an hour (no more minimum period at all) and work the rest of the week/month. Where there is a mix of work and non-work, the wages cap for the month will be pro-rated, so if employees are working for 40% of the month, then 60% of the wages cap will apply.
- The numbers of employees in the claim for the periods from 1 July onwards cannot exceed numbers in any claim prior to that date.
- Despite the financial taper, employees must still receive 80% of wages so employers will have to make the top up to salary, pension and NIC at their own cost.
- Employers should ensure that their CJRS claims are factually correct and supported by calculation workings (and that an audit trail for the claims is retained) so that any queries from HMRC can be answered robustly.
We will provide a further update on the detail of the changes when it has been provided by HMRC on 12 June 2020.
However, at the current time, the outline of the process by which CJRS will be extended will provide comfort to employers who are seeking certainty in relation to employment costs whilst the UK eases the lockdown restrictions. In addition, the early introduction of Flexible Furloughing will enable employers to scale up their engagement of furloughed employees with the reassurance that the employees can be furloughed more extensively if needed.