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The main features of the scheme are:

• Employers will receive a grant of up to 80% of the salaries of furloughed staff up to £2,500 per month.
• A furloughed employee my not work for the business in any way.
• You may reduce an employee’s salary, but you need to make sure you do not breach the employment contract and employment law.
• The first payments of grants are expected by end of April. 
• Salaries for some directors may qualify for the scheme. Care is needed as this is a highly contentious area.  Please read our guidance below.
• The grant will be treated as taxable income on the employer’s tax return.
• The scheme will run for 3 months from 1 March 2020. The chancellor will consider extending the scheme in mid-May.

The government information states that the scheme is designed for businesses whose operations are severely affected by the Coronavirus. It is not clear if statement could be used by HMRC to challenge claims.

What does furlough mean? 

When you furlough staff, you are laying them off with pay. This is an alternative to making staff redundant. Although furloughed staff remain employees of your business, they may not perform employment duties of any kind. This an “all or nothing” rule. Staff must be 100% unavailable for duties. 

A member of staff who is working reduced hours is not considered to be furloughed and no grants can be claimed in that instance. 

Furloughed staff may undertake training and voluntary work.

Who can be furloughed?

Any member of staff employed on 28 February 2020 can be furloughed. This includes part-time and zero-hours employees.

A furloughed member of staff must be laid off for a minimum of 3 weeks. 

How does it work?

• You will identify the employees you wish to furlough and decide if you pay them their full salary or 80% of their contractual pay (this excludes commissions and bonuses). You will need to consult with your staff to make sure that they agree:
  • to being furloughed; 
  • to the changes in pay.

This needs to be done formally and in line with employment law and employment contracts. You should seek HR advice if you are in doubt. 

• The minimum time an employee can be furloughed is three weeks. Employees can be furloughed multiple times, if each period is a minimum of three weeks.
• Payroll will continue as before and you will pay staff salaries in the normal way, subject to any deduction agreed with staff. 
• An on-line facility to claim the grant will be available by the end of April. You will be able to make a claim yourself or you can ask your accountant to make a claim. The calculations needed to arrive at the amount to claim can be complex, so we recommend that you use an accountant. The accountant will need certain information and will need to be set up as your agent. You should get in touch with your accountant as soon as possible to avoid delays in your claim.
• The amount you can claim will be 80% of the employee’s contractual salary as at 28 February 2020, up to £2,500, plus associated employer’s national insurance and the pension contributions.
• We do not know how long it will take for a claim to processed. Although HMRC have brought in additional staff they are expecting a high volume of claims. They also said that they will need 4 to 6 days to perform checks on the claims. 

Employers need to understand that there will be a time delay between paying employees and receiving the grant.

Can directors be furloughed?

The latest guidance from the government provides some clarification to this question. 

• If a director is engaged under an existing written or verbal employment contract on 28 February 2020, and his/her services in performing the duties as an employee or director are not required due to the Coronavirus crisis, then that director may be furloughed.
• To qualify for furlough status, that director may not perform any employment related duties. This include tasks such as answering business e-mails, marketing (including posting on social media) admin and bookkeeping duties. However, the director may continue to perform statutory duties, such as signing accounts. We have been advised that signing VAT returns would be classified as a statutory duty.
• Although it is possible for all directors to be furloughed, directors will need to think carefully if it is commercially sensible to this. Some companies are furloughing all directors, but one. Others are furloughing all directors in 3-week blocks with periods in between catch up on business duties. The HMRC guidelines do not appear to block this arrangement.
• The amount that can be claimed is restricted to the director’s salary. It is not possible to claim for dividends. 

It is important to keep documentation to support a furlough claim. We recommend that directors sign a furlough agreement. 

What other matters should I consider?

• Potential insolvency: As a director you should not allow the company to continue to trade if you know it is insolvent. You could potentially become liable for your company’s debts. If you have any concerns, you should speak to an insolvency practitioner.
• HMRC checks: HMRC have already said that they are expecting higher levels of fraud and abuse. Also, this legislation is new to everyone and some aspect are still unclear, so there is an increased risk or unintended errors in claims. We expect HMRC to perform enhanced checks at the time the grant claim is made and afterwards. 

How Beans can help?

If you have any question you should get in touch with us. As a client Beans would support you in a number of ways:

• Advise you on how the scheme will apply to your business.
• Provide templates for letters to furloughed employees. These will be made available to clients at no charge. 
• Provide you with access to our HR support facility.
• Help you determine furlough status of you employees.
• Calculate furloughed pay calculations.
• Make the grant claim and deal with HMRC’s enquiries.

Further information?

See the link to the government publication here: HMRC Coronavirus Job Retention Scheme

DISCLAIMER

The rules for the Employee Job Retention Scheme are subject to change as the government/HMRC issue further guidance and clarification. While we make every effort to make sure this guide is accurate and up to date, you should take professional advice before acting on the information provided here. If you contact us, we will be happy to help. Beans cannot take responsibility for actions taken and losses incurred as a result of actions taken or not taken based on the information provided here.