The Chancellor announced changes to the Coronavirus Job Retention Scheme (CJRS) that apply from 1 July 2020. There are several important changes and dates that will affect how a business complies with the rules and manages its staffing and cashflow. Employers should also keep comprehensive records in case of any future HMRC enquiries.
Flexible furloughing and eligibility
From 1 July 2020, flexibility was introduced to allow businesses to bring back employees to work part-time. Employers will be able to decide the hours and shifts their employees will work and will be responsible for paying their wages while in work. The Government will continue to subsidise employees’ salaries while they are not working. This change supports businesses to steadily bring employees back to work as lockdown restrictions are lifted.
The claims for periods or hours that employees are not working will be calculated by reference to their “usual hours”. The determination of “usual hours” can involve complex calculations. Employers will now need to provide details of hours usually and actually worked when making a claim under the CJRS.
Although this is a positive step for businesses, the increased complexity of the CJRS presents a challenge. There are additional compliance requirements of the scheme and an increased record-keeping burden.
Only employees who have been furloughed for a full three-week period prior to 30 June can be included in a claim from 1 July. This means the scheme is effectively closed for new entrants.
The maximum number of employees that can be included in a claim from 1 July is limited to the maximum number of employees included in any prior month claim.
There are some exemptions to this limit for those returning from parental leave.
All claims under CJRS for periods ending on or before 30 June must be made by 31 July 2020.
Job retention scheme bonus
A job retention bonus has been announced for employers that retain staff after their period of furlough ends. A £1,000 bonus is available for every furloughed employee who is brought back to work post-furlough and who remains continuously employed until the end of January 2021. For a business to be eligible, the affected employees must earn more than the lower earnings limit (£520 per month) for the three-month period between November 2020 and January 2021.
There is a concern that the CJRS will have the effect of delaying redundancies, rather than its intended effect of avoiding redundancies altogether. The job retention bonus should encourage employers to retain staff where possible, rather than simply making them redundant as soon as Government support ends.
Increasing costs for employers
Although the CJRS will now run to the end of October, the level of grant under the scheme will be slowly tapered from 1 August to reflect the fact employees are returning to work.
With effect from August, CJRS claims will be calculated as follows:
August - The Government will continue to pay 80% of wages up to a cap of £2,500. Employers will pay employer’s NICs and pension contributions.
September - The Government will pay 70% of wages up to a cap of £2,187.50. Employers will pay employer’s NICs and pension contributions and 10% of wages to make up 80% total up to a cap of £2,500.
October - The Government will pay 60% of wages up to a cap of £1,875. Employers will pay employer’s NIC and pension contributions and 20% of wages to make up 80% total up to a cap of £2,500.
With the cost to employers increasing over the final months of the scheme, businesses should consider staffing requirements and should model cash flow and costs carefully in order to make decisions regarding staffing levels.
Compliance and penalty measures
New measures have been included in the Finance Bill to give HMRC the power to raise assessments, a charge of up to 100% of overclaimed CJRS amounts, and additional penalties in the case of a deliberate breach of the scheme. HMRC has also opened a whistleblowing helpline to enable employees to report their employers for breaches, such as being required to work while still claiming under the scheme.
HMRC is expected to announce a voluntary period for employers to notify HMRC and pay back the grant where the employer knew they were non-compliant or not eligible to receive the claim.
Ensuring your business has been compliant is more vital than ever due to the significant penalty risks. The compliance will also impact Senior Accounting Officer requirements and will be checked as part of tax due diligence assignments.
This means record-keeping is particularly important and HMRC has stated that all records must be kept for six years. Claims should be re-checked against the guidance and, if excessive claims have been made, the amount overclaimed should be repaid (either through your next claim or by contacting HMRC).
An increasing number of high-profile businesses have repaid job retention scheme claims to HMRC.
There is no clear dividing line in HMRC’s guidance between businesses that should or should not claim under the scheme. It states that “The scheme is designed to help employers whose operations have been severely affected by coronavirus to retain their employees and protect the UK economy. However, all employers are eligible to claim under the scheme and the Government recognises that different businesses will face different impacts from coronavirus.” There is no definition of “severely affected”; this is left open to interpretation.
The Treasury has also stated that it is “integral” to the purpose of the CJRS that the amounts claimed are “used by the employer to continue the employment of employees.” This means that a business should carefully consider whether or not a claim is appropriate in circumstances where employees may not be retained after the furlough period ends.
Although the strictest penalty measures in the Finance Bill are targeted at fraud and/or failures to pass amounts claimed to employees, claimants should also keep records showing that they were severely impacted by COVID-19 and, to the extent possible, that employees were furloughed with the intention of retaining them for the long term.
How S&W can help
We can support you in calculating and processing claims, which will be important given the introduction of flexible furlough, the increasingly complex calculations and the reduction in support over the coming months. Our team can advise you on managing risk to the business where claims have been made or calculated incorrectly. We can review your calculations to identify and correct any calculations and advise on the adequate records and evidence that should be maintained.
We can also support you in other areas at this time, such as the treatment of expenses and benefits during COVID-19 and statutory sick pay reliefs.
Please speak to a member of the team below if you have any queries on the CJRS.
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By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice before making decisions. HMRC Tax Year 2022/23.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.