Jet Accountancy

The Coronavirus Job Retention Scheme (CJRS) has provided a lifeline to millions of employees and their employers during the Covid-19 pandemic. As at 19 July 2020, 9.5 million employees had been furloughed by 1.2 million employers, benefitting from support totalling £29.5 billion.

As with all good things, the CJRS must come to an end. The scheme is now is its second and final phase, which runs from 1 July 2020 to 31 October 2020. This phase provides a transition from Government support to employers once again meeting the costs of employing their employers. From 1 July 2020, furloughed employees can return to work on reduced hours under the flexible furlough rules, with employers paying the employees as usual for the hours that they work and claiming a grant under the CJRS for the remainder of their normal hours. Employees who were not furloughed for at least three consecutive weeks prior to 1 July 2020 are not eligible for a grant under the scheme from July onwards (unless the employee returns from statutory leave).

During the final phase of the scheme, employees will continue to receive 80% of their pay up to the equivalent of £2,500 a month – this is known as minimum furlough pay.

From 1 August 2020, the financial support provided under the scheme starts to reduce. For claim periods on or after 1 August 2020, employers cannot claim back the employer’s National Insurance and minimum pension contributions on grant payments but must instead meet these costs themselves. For September, employers can only claim 70/80^th of the employee’s minimum furlough pay; this reduces to 60/80^th for October. However, furloughed employees will continue to receive their minimum furlough pay, with the employer making up the shortfall.

Job Retention Bonus

When the scheme comes to an end, employers will need to assess their staffing requirements and decide whether they can bring furloughed employees back to work. The Government are keen that they do. To encourage employers to retain furloughed employees, they will pay a Job Retention Bonus of £1,000 for each furloughed employee who is employed continuously from the end of the CJRS until 31 January 2021. To qualify for the bonus, the employee’s earnings during this period must, on average, be at least equal to the lower earnings limit for Class 1 National Insurance purposes, set at £120 per week (£520 per month) for 2020/21. The Government will pay the bonuses from February 2021.

As far as the Coronavirus Job Retention Scheme is concerned, it is all change from 1 July 2020. From that date, employees can be flexibly furloughed allowing furloughed employees to return to work part time and be furloughed for their usual hours that they do not work. The employer pays the employee for the hours that they work and claims a furlough grant for the furloughed hours. The employee continues to receive ‘minimum furlough pay’ for the furloughed hours, equal to 80% of their pay up to the maximum amount equivalent to £2,500 a month.

Conditions

There are, however, conditions. From 1 July, a grant claim can only be made if the employee was previously furloughed for at least three consecutive weeks before 1 March 2020 and 30 June 2020. This means that a grant cannot be claimed for an employee who has been working reduced hours throughout (although a furloughed employee can be brought back on the same reduced hours and a grant claimed).

Employers to start meeting costs

Although employees will continue to receive 80% of their wages based for their furlough hours up to the maximum amount (equivalent to £2,500 per month), the employer will start to meet some of the costs from 1 August. Prior to that date, employers can claim the employer’s National Insurance due on the grant amount and also the associated minimum pension contributions due under auto-enrolment. However, for pay periods starting on or after 1 August 2020, employers must meet this cost.

The amount that the employer can claim for furloughed hours is reduced to 70% of the employee’s pay (up to maximum equivalent to £2,187.50 per month). For October, this reduces to 60% of the employee’s pay (up to a maximum equivalent to £1,875 per month). The employer must top up the grant so that the employee receives 80% of their wages up to the maximum amount.

The scheme comes to an end on 31 October 2020.

Doing the sums

Flexible furloughing introduces some more complex calculations; although help is available on how to do the sums on the Gov.uk website.

The starting point is to work out the employee’s usual hours, furloughed hours and minimum furlough pay. Guidance on the Gov.uk website explains how to do this. From 1 July onwards, claims must start and end in the same calendar month. If the pay period spans two months, it must be split into two separate claims. This is because the amount that can be claimed is different each month from July onwards.

The furlough hours are the usual hours less the hours that the employee has worked in the month.

The minimum furlough pay is the lesser of 80% of the pay for the pay period and the maximum amount, divided by the employee’s usual hours and multiplied by the furlough hours.

Employers who provided taxable expenses and benefits to employees in 2019/20 need to tell HMRC about them by 6 July 2020, if they have not opted to tax them via the payroll.

Non-payrolled taxable expenses and benefits are reported to HMRC on form P11D. Employers must also file a P11D(b) by the same date. This is the employer’s declaration that all required P11Ds have been submitted, and also the statutory Class 1A return.

Taxable value

The taxable value of the benefit is normally the cash equivalent value. However, where the benefit has been provided under an optional remuneration arrangement, such as a salary sacrifice scheme, and is one to which the alternative valuation rules apply, the taxable amount is the relevant amount. Broadly, this is the salary foregone where this is higher than the cash equivalent value calculated under normal rules.

Exempt benefits

Benefits and expenses that are exempt from tax do not need to be included on the P11D. However, remember to check that all associated conditions have been met.

The exemption for paid and reimbursed expenses means that no tax liability arises where the employer meets or reimburses expenditure which would have qualified for tax relief if met by the employee. Paid and reimbursed expenses falling within the scope of the exemption do not need to be reported on the P11D.

PAYE Settlement Agreements

An employer can use a PAYE Settlement Agreement (PSA) to meet the tax liability on certain benefits and expenses on the employee’s behalf. Items included in a PSA do not need to be returned on the P11D. A PSA is a continuing agreement and remains in place until revoked. Review PSAs before 6 July 2020 to ensure they remain valid and to add any new items that you wish to include.

Payrolled benefits

Employers can opt to tax benefits through the payroll (‘payrolling’) instead of reporting them to HMRC on the P11D. This option is available for all benefits excluding low-interest and interest-free loans and living accommodation. However, the employer must register before the start of the tax year to payroll.

Payrolled benefits do not need to be included on the P11D; however if other benefits are also provided, these must be included.

Remember to include payrolled benefits in the calculation of the Class 1A liability on the P11D(b).

Online or paper forms

Expenses and benefits returns can be filed online using HMRC’s Expenses and Benefits Online Service, PAYE for Employers or commercial software.

However, there is no requirement to file online and paper returns can be filed if this is preferred.

The deadline is 6 July 2020. Employees should be given a copy of their P11D by the same date.

A nil return is required where HMRC have sent a P11D(b) or a P11D(b) reminder letter. It can be made online at www.gov.uk/government/publications/paye-no-return-of-class-1a-national-insurance-contributions.

Pay Class 1A National Insurance

Class 1A National Insurance contributions for 2019/20 should be paid by 22 July 2020 if payment is made electronically. If payment is made by cheque, as 19 July falls on a Sunday, the cheque should reach HMRC by Friday 17 July.