Furlough Scheme who is eligable

HMRC will set up a new online coronavirus job retention scheme/furlough portal, due to launch on 20 April 2020, so that ALL UK employers this month, regardless of size, will be eligible for assistance where an employee has been designated as a ‘furloughed worker.’

HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. The scheme does not allow for payments directly to employees, the responsibility for paying wages and salaries remains with the employer and must be recorded and reported in the normal way.

The current plan is that this will be in place for three months, starting from 1 March 2020 to 31 May 2020.  Employers must set out which of their employees are ‘furloughed workers’ and inform the particular employees.

The guidance states ‘You will remain employed while furloughed. Your employer could choose to fund the differences between this payment and your salary, but does not have to’

Changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.

When will it apply?

This will be backdated for wages from 1 March 2020 although it will be June 2020 before payments under this scheme are made to employers. Claims will cover the period from 1 March 2020 as the scheme has been backdated and for full and part time employees the salary, as in their last pay period prior to, 19 March 2020 will be referenced.

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 for a qualifying claim.

HMRC states that your first claim can be based on the employee’s salary as at 28 February 2020 as per the previous guidance. It follows that your second and subsequent claims must make reference to the gross salary, as in their last pay period prior to, 19 March 2020.

HMRC was up and running on 20 April 2020.

Employers will need to provide the following information via an Online Portal.

  • ePAYE reference number (the employer must enrol for PAYE online);
  • UK bank account and sort date; and
  • contact name and sort code.
  • the number of employees being furloughed;
  • the claim period – start and end date; and
  • amount claimed (per the minimum length of furloughing of three weeks).

To reiterate, the Online portal is scheduled to be operational in the next two weeks.

When will it end?

The scheme is in place for three months at present and it will be reviewed as and when that becomes necessary.

How often can a claim be made?

One claim can be made every three weeks. As such, the claim period is not linked to the employee’s pay period.

Who can make the claim?

The claimant must have:

  • created and started a PAYE payroll scheme on or before 19 March 2020;
  • enrolled for PAYE online; and
  • a UK bank account.

‘File only’ agents such as a payroll bureau will not be able to make a claim due to data protection reasons. However, individual businesses will be able to apply directly to HMRC for furlough aid.

HMRC confirmed on Thursday 16 April 2020 in an email to Accountancy Daily that ‘payroll bureaus, or a “file only agent”, wouldn’t be able to use it as things stand but those employers can still make claims themselves’.

Businesses and agents that are authorised to act on behalf of their client’s PAYE matters will be able to make a claim on behalf of their clients.

We think of a ‘File Only’ agent as an agent who files RTI but does not act for their client on any other matters.

Does it apply to all employers?

On Wednesday 15 April a Treasury Direction was issued and this provides some further information. 

It states: ‘The employer must have a pay as you earn (PAYE) scheme registered on HMRC’s real time information system for PAYE on 19 March 2020 (“a qualifying PAYE scheme”).’

It applies to all UK businesses, regardless of their size. This applies to charitable and not for profit businesses too. 

The scheme can also apply to any limited liability partnership (LLP) member that is considered an employee by virtue of section 863a, Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005)

The reference salary for say, a salaried member of an LLP would be the LLP member’s profit allocation, excluding any amounts which are determined by the LLP member’s performance, or the overall performance of the LLP.


This is a grant which employers do not have to pay back. It will form part of their taxable income

This is a grant which employers do not have to pay back. It will form part of their taxable income.

The scheme is open to all UK employers as long as they have a UK bank account.

Payroll consolidation

Where a group of companies have multiple PAYE schemes and these are consolidated into a new PAYE scheme after 19 March 2020 then the new scheme will be eligible to furlough those employees.

Coronavirus Business Interruption Loan Scheme (CBILS)

If your business needs short term cashflow support, you may be eligible for a Coronavirus Business Interruption Loan (CBILS).

It is worth noting that employers may wish to consider this new loan facility which provides loans of up to £5m being accompanied with no interest charges for the first 12 months. 

Employers may consider the possibility of using this money to ease immediate cashflow issues in order to furlough employees.

The aim being to pay it back within 12 months when they are reimbursed under the Job Retention Scheme.

What is a ‘furloughed’ employee?

The word furlough generally means temporary leave of absence from work.

A furloughed employee is someone who rather than being dismissed for redundancy by their employer, is kept on the payroll during a period where the employer does not have any work for the employee.

There is an employment law aspect to this.  Employers will need to consult and agree which each employee that they are being furloughed. Employers will then have to confirm to the employee in writing that the employee has been furloughed.

An employee can be furloughed by one employer and continue to work for another employer as long as both employments were on different PAYE schemes. 

This scenario would only apply if the employee was on two or more separate payroll schemes at 19 March 2020 (this was previously stated as 28 February 2020). 

Having stated this, HMRC also states: ‘Whilst furloughed your employer cannot ask you to do work for another linked or associated company.’

How long can an employee be furloughed?

A minimum of three weeks (the guidance refers to 21 calendar days).

It is possible to furlough an employee for three or more weeks and then ask them to work as normal. It is possible to furlough that same employee again. 

It is possible to make an employee redundant while they are furloughed.

Can an employee work for an employer while they are furloughed?

To qualify for the scheme, employees must not undertake work for the employer while furloughed. Having stated this, training is not considered to be working.

The employee can also undertake volunteer work, all of which is on the proviso that no services are provided to the employer in question and the volunteering does not make money for the employer.

Where training is undertaken at the request of the employer the employee will be entitled to be paid at least the national minimum wage (NMW) for this training. In most cases, the 80% furlough payment will ensure that the NMW has been observed and so an additional payment will not be required.

If the employee is on reduced hours or reduced pay then they would not be eligible for this scheme.

Gross or net?

The gross salary does not include fees, bonuses and commission. The gross salary in their last pay period prior to 19 March 2020 (this was previously stated as the gross salary at 28 February 2020) is the relevant figure to use (see below)

HMRC advise that the employee’s actual Gross salary should be used in order to arrive at the 80% figure in relation to full and part time employees.

For full or part time employees, claim for the 80% of the employee’s salary, as per their last pay period prior to 19 March 2020, before tax.

Remember, 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.

HMRC advises that a claim must be made for 80% of your employees wages up to a maximum of £2,500 per month, emphasising: ‘Do not claim for the worker’s previous salary.’

Are bonuses and commissions included in this gross figure?

The gross salary does not include fees, discretionary bonuses and commission. However, it can include regular contractual and this can include past overtime and compulsory commission. 

There is no universally agreed definition of ‘compulsory commission’ however, our interpretation is that this relates to commission that the employee is contractually entitled to receive as opposed to less certain, discretionary commission that an employee has no right to under their contract.  

This must be read in conjunction with the next section, which sets out the legislative standing for the Coronavirus Job Retention Scheme via a Treasury Direction amending the Coronavirus Act 2020.

Treasury Direction click here

On Wednesday 15 April a Treasury Direction was issued and this provides some further information.

It states that ‘no account is to be taken of anything which is not regular salary or wages.’ Paragraph 7.3 to 7.5 set out what is meant by ‘regular.’

In summary, regular salary or wages would be that which is not conditional on any matter, is not a benefit of any other kind and arises from a legally enforceable agreement.  Additionally, the regular wage or salary cannot vary according to the following matters:

(a)  the performance of or any part of any business of the employer or any business of a person connected with the employer,

(b)  the contribution made by the employee to the performance of, or any part of any business,

 (c)  the performance by the employee of any duties of the employment, and

(d) any similar considerations or otherwise payable at the discretion of the employer or any other person (such as a gratuity)

Particular emphasis seems to have been placed performance related bonuses and commission as they should not form part of the reference pay used by the employer in arriving at the 80%/£2,500 figure. 

In direct contrast, the idea of compulsory commission would appear to fit nicely into the criteria that the employee is legally entitled to it and it is not conditional on any matter listed in (a) to (d) directly above.

The gross salary will not include non-monetary benefits provided to employees including taxable Benefits in Kind.

Benefits that are provided via a salary sacrifice scheme (including pension contributions) should not be included when determining the gross salary.

HMRC does, however, advise that ‘Where the employer provides benefits to furloughed employees, this should be in addition to the wages that must be paid under the terms of the Job Retention Scheme’

HMRC agrees that Covid-19 counts as a life event/’lifestyle’ that could warrant changes to salary sacrifice arrangements. It possible for the employer and employee to update the relevant employment contract to switch out of a Salary Sacrifice.  HMRC updated their salary sacrifice guide for employers on 9 April.

Employees whose pay varies

For those employers that have employees on varying wages the eligibility criteria still refers to monthly earnings and the following would apply.

If you’ve been employed (or engaged by an employment business in the case of agency workers) for a full year, employers will claim for the higher of either:

  • the actual amount paid to the employee in the corresponding calendar period in the previous year; and
  • an average of your monthly earnings for the 2019/2020 tax year.

Note that HMRCs guidance makes no reference to 80% in respect of the above.

This may be an oversight and it may be that both the 80% and the £2,500 cap apply.

We would advise a cautionary approach at this stage and assume that both caps do apply until such time that HMRC expands on this point.

In contrast, HMRC is much clearer where an individual has been employed for less than a year, as they state that employers will claim for 80% of their average of their monthly earnings since they started to work.

Again, we think that the £2,500 cap would apply here too, however, this is an assumption as HMRC’s guidance to date does not mention this cap.

If the employment began in March 2020, then work out a pro-rata for their earnings so far and claim for 80%.

If the employee is returning from statutory leave then the reference pay will not be the pay that they received while on statutory leave. The employer should calculate the grant against the gross salary before tax.

What if the employee is on statutory sick pay (SSP) already?

HMRC states that employees on sick leave or self-isolating should get statutory sick pay (SSP), but can be furloughed after this.

Employees who are shielding in line with public health guidance can be placed on furlough, however, HMRC does state ‘ It is up to employers to decide whether to furlough these employees.’

National Minimum Wage

Individuals that are working are entitled to NMW for the hours that they are working or treated as working under minimum wage rules.

Furloughed workers are not working and therefore, it is possible that the 80% figure might result in a figure that is below NMW. 

HMRC state ‘This means that furloughed workers who are not working can be paid the lower of 80% of their salary or £2,500 even if, based on their usual working hours, this would be below their appropriate minimum wage.’

Apprentices can be furloughed in the same way that any other employee can be furloughed, however, they are entitled to at least Apprenticeship Minimum Wage/National Living Wage/National Minimum Wage (NMW) as appropriate for the time that they are training, even if this is more than 80% of their normal wages.

Does it apply to all employees? – what about those on unpaid leave, shielding or those that stopped working and were re-employed by the same employer?

The 80% wage guarantee will cover zero-hour contracts or casual workers as long as they were on PAYE payroll on 19 March 2020. A foreign national can also be furloughed.

This means that any employee that is hired after 28 February 2020 (this has not changed to 19 March 2020) cannot be eligible for this scheme.

Employees that were employed at 28 February (this date has not changed to 19 March) and on payroll and stopped working for that employer before 19 March can also qualify if the employer rehires (re-employs) them and puts them on furlough.

However, those employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February 2020 (this has not changed to 19 March 2020)

Employees who are shielding in line with public health guidance can be placed on furlough, however, HMRC do state ‘ It is up to employers to decide whether to furlough these employees.’

The self-employed are not covered by this scheme.  Please refer to our Self-employment Income Support Scheme advice.

‘Whistle-blower’ service

HMRC have announced their intention to set up a ‘whistle-blower’ service for workers to use to report employers.  We are awaiting further details.

Does this apply to Personal Service Companies?

The guidance released on 4 April states that this applies to salaried individuals who are directors of their own Personal Service Company (PSC) including Off-Payroll workers supplying services via their PSC.

HMRC acknowledge that a director has duties which are set out in the Companies Act 2006 such as the obligation to file accounts and they accept that a director must meet those duties even when they are furloughed.

However, HMRC then go on to state that they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.

Presumably, work would include even the most basic employment duty such as checking post and replying to customer emails.  Will no employment duty be carried out at all during a time that a director of a personal service company has furloughed themselves in their employee capacity?

Does this apply to a contractor within the scope of IR35 off-paying working rules?

Yes, it can do.  In this scenario, if a public sector body such as the NHS wanted to furlough a contractor then they would need to discuss this with the PSC and the fee payer.  Usually, the fee payer is an agency that pays the contractors PSC.  The agency would then make the claim for reimbursement under the job retention scheme and the PSC would then report the payment it pays to the contractor as deemed employment income via PAYE on the RTI return.

Where a contractor is continuing to receive payments from a public sector client (including through the CJRS or other any other scheme), income from this client should be excluded from any calculation of the reference pay for the purposes of the CJRS if the contractor also decides to furlough themselves as an employee or director of their own company.

What will the Grant from HMRC cover?

80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions (Secondary Class 1 contributions) and minimum automatic enrolment employer pension contributions on that subsidised wage.

Must an employer supplement employees’ salaries over the 80%?

No.  Employers can if they wish to or if there is an employment contract in place which requires this.

HMRC advise ‘If appropriate, worker’s wages should be reduced to 80% of their salary within your payroll before they are paid.’

Importantly, this adjustment will not be made by HMRC and Claim for the 80% of the employee’s salary, in the last pay period prior to 19 March 2020, before tax.

This means that at a minimum, employers must pay their employee the lower of 80% of their regular gross wage or £2,500 per month to meet eligibility criteria and HMRC will then reimburse the employer for this same amount.

Employers can choose whether to:

Only make the salary payment (80%, capped at £2,500) which is to be reimbursed by the government. As mentioned, HMRC say that they will not make the adjustment to arrive at the 80% so the onus is on the employer.

Pay all of the difference between the grant and the employee’s normal salary.

Pay part of the difference between the grant and the employee’s normal salary.

Note the emphasis on ‘normal’ salary and ‘regular’ wage and the reference to the salary in their last pay period prior to 19 March 2020 (this was previously stated as 28 February 2020)

How does the grant impact on a business’s tax position?

The grant will be treated as normal business income and taxable accordingly.

We will update this document as and when further governmental guidance is issued. To date, this has been revised and updated on an almost daily basis by HMRC as a result of government announcements, including extending and fine-tuning the scheme.

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