November 2020 Furlough Scheme update
On November 2020, the Government has announced that the Coronavirus Job Retention Scheme, aka the Furlough Scheme, will be extended due to a second national lockdown. As a result, the Coronavirus Job Support Scheme will be postponed until March 2021, the end date of the current Furlough Scheme.
Click here for further details.
The Government has announced a number of initiatives to help employers through the Coronavirus outbreak. Whilst there are certainly gaps, these measures will go some way to managing the economic pressures of the pandemic and avoid the mass unemployment we’re now seeing reported in the US.
We have prepared a series of articles to explain what the schemes mean to contractors freelancers and limited company owners, extracting the information that’s most relevant to you. Here we look at the Coronavirus Job Retention Scheme aka, the Furlough Scheme which is applicable to contractors and directors of small businesses with employees, looking at who can access the scheme and how.
You can read our article for businesses with no additional employees here.
What is the Coronavirus Job Retention Scheme (CJRS) and how do you access it?
The Coronavirus Job Retention Scheme (CJRS) aims to help employers avoid the need to make their staff redundant by offering temporary leave, also known as ‘furloughing’.
What the CJRS scheme allows you to do is claim a Government grant of 80% of a furloughed employee’s usual monthly wages, up to a maximum of £2,500 per month. The grant is subject to tax and National Insurance in the usual way, though the Employers’ National Insurance and any mandatory employers’ pension contributions elements can also be claimed back, if applicable.
Eligibility for the Furlough Scheme and cut-off date
To be eligible for the Coronavirus Job Retention scheme, furloughed employees had to have been added to the company’s PAYE payroll on or before the 19th of March 2020.
What is the Job Retention Scheme eligibility of company directors
As a director, you may also be eligible to put yourself into ‘furlough’ and claim 80% of your salary. You must not provide any services on behalf of the company, however.
How do furlough grants are processed?
Claims for the grant will need to be made online when the system becomes available towards the end of April. When preparing to make your claim, please contact us for advice and support to ensure you are claiming the correct amount. CJRS payments should be included when calculating your income tax and corporation tax profits.
Before you make your claim you will need the following to hand:
- Your name, phone number, and ePAYE reference number.
- The number of employees being furloughed.
- The claim period & the amount claimed.
- Your bank account number and sort code – HMRC will reimburse you directly.
The furlough rules
The CJRS scheme is available to employees furloughed for March, April and May but may be extended if necessary.
You need to be aware that anyone who is furloughed cannot undertake any work during the furloughed period, though they can participate in training.
You can read the complete Coronavirus Job Retention Scheme guidance; here, but if you have any questions about how it relates to your specific circumstances, please don’t hesitate to get in touch.
You may also find it helpful to read our guidance on the support available to small businesses with no employees, as well as the various measures available to help ease businesses cashflow .
Furlough Scheme Examples
If an employee is on a salary of £42,000, or £3,500 /month, 80% of this salary is above the £2,500 restriction and therefore the amount you can claim back is £2,500 + the employers’ national insurance and standard pension contributions (if opted in).
From 1st April, the employers NI on £2,500 salary would be around £244 and the 3% employers pension contribution around £60. So in total, the amount that would be received from the government for this employee will be about £2,804.
You could opt to pay the employee the £2,500 gross salary that will be funded or you could top it up to their normal salary and fund the balance yourself.
- If an employee was paid on an hourly rate and their hours varied each month, and if they have been with you for over 12 months, you can claim the highest of either the same month the previous year or the average of earnings in the 2019/20 tax year.
- If for less than 12 months it will be based on the average in the 2019/20 tax year.
- If they only started working in February, it would pro-rated.
- If in April 2019 they earned £1,500 and throughout the 2019/20 tax year they averaged £1,250/month, if furloughed in the month of April, you could claim 80% of £1,500 (£1,200) plus the employers’ national insurance (around £65) and standard pension (if opted in, of around £20) totalling roughly £1,285. Again, you can opt to top this up yourself but anything additional would not be funded by the government. To work out the amount claimable in May, it would be the higher of the May earnings and the average.
- If the above employee was only employed for less than 12 months then they would have to base the 80% funding on £1,250 (£1,000).