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Further details of the CJRS have been published. The CJRS is effectively a grant paid to employers to subsidise the cost of retaining employees through the Coronavirus slow down.
What are the key qualifying criteria?
The CJRS is only relevant to employees who were registered on a PAYE scheme on 28 February 2020.
A claim can only be made for an employee who has been ‘furloughed’.
The minimum time that the employee must be furloughed is 3 weeks, and (currently) a maximum of 3 months.
Once an employee has been furloughed, they should not undertake any work for the business (although training is allowed). The furloughing is on an employment by employment basis, so being furloughed in one employment does not prevent an individual continuing in another employment of volunteering role. It is essential that employers obtain appropriate legal guidance when furloughing employees.
How does the CJRS work?
Under the CJRS, an employer can claim the higher of 80% of the employee’s gross wage or £2,500, plus employers National Insurance Contributions (NIC) and the minimum pension obligations under auto enrolment. As an example (based on 2020/21 rates):
Example 1:
An employee who earns £42,000 per annum.
Per month, the employee’s gross wage is £3,500. 80% of this is £2,800. Therefore, the employer would claim a maximum of £2,500. In addition, the employer can claim a proportion of the employers NIC and auto enrolment contributions on the subsidised wage.
Gross salary £2,500.00
Employers NIC £243.98
Auto enrolment employer pension £59.40
Total grant £2,803.38
Example 2:
An employee who earns a gross wage of £24,000 per annum.
As the monthly gross wage is £2,000, the maximum claim will be 80%: £1,600.
Gross salary (80%) £1,600.00
Employers NIC £119.78
Auto enrolment employer pension £32.40
Total grant £1,752.18
The salary calculation should not include fees, commission or bonuses.
If an employee’s wage varies, the calculation should be the higher of:
The same month’s earnings from the previous year
Average monthly earnings from the 2019/20 tax year
If an employee has be employed for less than a year, the claim should be based on the average monthly earning since they started work.
If an employer chooses to pay the employee 100% rather than the 80% grant, HMRC will only fund the employers NIC and pension on the 80% element.
Is the grant taxable?
As the grant monies received by the business are made to offset against tax deductible salary costs, the grant monies are included as taxable income. This will be the case for income tax and corporation tax.
Are company directors included in the scheme?
It is possible to furlough a company director and include them in the CJRS. Whilst they are furloughed, directors can continue to act as a director and fulfil their statutory and administrative duties such as filing financial statements. If directors are able to continue to undertake revenue-generating work, even on a reduced basis, they will not qualify for the scheme.
Many director/shareholders of limited companies will structure their profit extraction via a small salary topped up by dividends dependent on the company’s performance. However, as the CJRS only covers basic wages paid through PAYE (excluding bonuses etc), any dividends paid are not included.
How do I make a claim under the CJRS?
As previously stated, it is essential the employers seek the appropriate legal advice when furloughing employees.
Only 1 claim can be made every 3 weeks and can be backdated to 1 March 2020.
To make a claim, employers will need the following information:
your ePAYE reference number
the number of employees being furloughed
the claim period (start and end date)
amount claimed (per the minimum length of furloughing of 3 weeks)
your bank account number and sort code (the payment will be made via BACS)
your contact name
your phone number
The CJRS is expected to be ready by the end of April 2020.
It should be noted that HMRC have indicated that they may retrospectively audit the validity of claims being made.
Simpkins Edwards has a specialist payroll department who to assist with making claims to the CJRS. If you require assistance, please contact your local Simpkins Edwards office.