Coronavirus – Job Retention Scheme and how to furlough employees & sole directors

Under the Job Retention Scheme, government is to step in and cover staff wages (capped) for employees otherwise at risk of redundancy due to the coronavirus pandemic. This will be in the form of a grant and cover up to 80% of an employee’s wages up to £2,500. The affected employees are ‘furlouged’ (given a leave of absence) and retained for when the business needs them again. Key points:

  1. Furloughed members of staff must not work for the employer during the period of furlough.
  2. Furlough is from 1 March 2020, so is to be backdated. It will last for at least 3 months and will be extended if necessary. Note that while the scheme is backdated to the beginning of March as it is intended to support all those employed then, a firm will only be eligible to claim the grant once they have agreed the furlough with their staff and staff have stopped working for the employer. This will of course be subject to employment law in the usual way.
  3. It is available to employees on the payroll at 28 February 2020. You can claim for full-time and part-time employees, employees on agency contracts and employees on flexible or zero-hour contracts. The scheme also covers employees who were made redundant since 28 February 2020 if they are rehired by their employer.
  4. All UK businesses are eligible, ‘any employer on the country, small or large, charitable or non-profit’ to use the Chancellor’s words. This includes recruitment agencies (agency workers paid through PAYE) and public authorities.
  5. The scheme pays a grant (not a loan) to the employer.
  6. The grant will be paid to the employer through a new online system which is being built for this purpose.
  7. The employer will pay the employee through payroll, using the Real Time Information (RTI) system as usual, as required by the employment contract. This contract may be renegotiated but that is a matter for employment law. So RTI system reporting of payroll will continue as normal.
  8. Scheme will be administered by HMRC:
    • Relevant employees must be designated as furloughed employees.
    • Employers will submit information to HMRC through a new online portal.
    • As this will take time to build, businesses should look to the Coronavirus Business Interruption Loan Scheme to support cash flow in the meantime. The narrative used in the information released so far says ‘if your employer cannot cover staff costs due to COVID-19 they may be able to access support…’. This is a conditional phrase which may relate to existing funds available to the employer. We do not yet know how these might be determined, nor whether there is a bar of some description.
  9. Maximum grant will be calculated per employee and is the lower of:
    • 80% of ‘wages’. The notes published so far, use the phrase ‘wage for all employment costs up to a cap of £2,500 per month’. It is our understanding that this excludes employers’ NIC and pension contributions. Wages will be determined by reference to a defined period (yet to be announced).
    • £2,500 per month.
  10. Furloughed employees can not undertake work for or on behalf of the organisation, including providing services or generating revenue.
  11. To claim, you will need your ePAYE reference number, the number of employees being furloughed, the claim period, (start & end date), amount claimed, your bank account number and sort code, your contact name and phone number.

How to furlough Sole Directors

Sole directors can take advantage of the Job Retention Scheme but only to the extent of their PAYE salary.

The scheme applies to sole directors as follows:

  • Dividends are NOT included as part of the amount which can be claimed
  • The director must stop working in the business on services or revenue-generating activities; only statutory duties can be carried out
  • The employers’ PAYE scheme must have been created and started by 28 February 2020 and you must also have a bank account in the UK. You must be on the payroll as at this date
  • Full time and part time directors on the payroll can claim the wage
  • A salary paid annually should be acceptable
  • The director can claim a grant of up to 80% of the ‘regular wage’ or £2,500 (whichever is lower). This claim can be backdated to 1 March 2020
  • The ‘regular wage’ is taken as the higher of the same month’s earnings from the previous year or the average monthly earnings from the 2019-20 tax year

There are a number of other factors which should be considered and further information can be found on the GOV website. We are here to advise you specifically and help you get the help you need.

We appreciate there are various scenarios specific to your business and we can advise accordingly. Please email Julia Gallagher or call Julia on 01527 558539.

Job Retention Scheme

Job Retention Scheme



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