THIS REFLECTS HMRC GUIDANCE ISSUED ON 26 JUNE 2020
The Flexible Furlough Scheme started on 1 July 2020 as Stage II of the Coronavirus Job Retention Scheme (CJRS), which is available to employers whose operations have been affected by COVID-19.
Under flexible furloughing, gone is the strict Stage I rule that employees cannot perform any work for the employer, as they can now work some of the time (on their full pay) and be furloughed for the rest (on 80% of their pay), in any proportion agreed between employer and employee. Or they can remain fully furloughed if there is no work for them to do.
For guidance on Stage I of the scheme up to 30 June, see:
31 July is the last day that you can submit claims for periods ending on or before 30 June (Stage I). Two separate claims will be needed for any June/July straddling furloughs, with furlough days up to 30 June 2020 to be included in the June claim.
Claims up to 30 June need to be submitted prior to claims from 1 July 2020, due to rules about maximum numbers (as explained below in the Who can claim section).
In addition, claims cannot be made more than 14 days before the end date of a claim, so, for example, claims to 31 July cannot be made until at least 18 July.
The scheme is expected to end on 31 October 2020 (although it may be extended for some sectors)
Although not in HMRC's guidance, it has confirmed in a webinar that final claims under the scheme must be made by 30th November. This may be a problem for some employers who do not pay on a calendar month cycle.
Under the scheme, employers can claim 80% of furloughed employees’ usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions (ER NICs) and minimum automatic enrolment employer pension contributions on that wage. This changes from 1 August when the employer starts to share some of the costs.
The first time you could make claims for days in July was 1 July. You could not claim for periods in July before this point.
Stage II from 1 July allows employers to bring furloughed staff back to work for any amount of time and any work pattern (e.g. two days a week), while still being able to claim the grant for the hours not worked. From this date, only employees that have previously been claimed for under the scheme are eligible to stay on the scheme. This means they must have previously been furloughed for at least 3 consecutive weeks taking place any time between 1 March and 30 June 2020.
For the minimum 3 consecutive week period to be completed by 30 June, the last day an employee could have started furlough for the first time was 10 June. This may differ if you have an employee returning from statutory parental leave.or a military reservist returning from active duty.
From 1 August 2020, the employer will be asked to contribute towards the cost of furloughed employees’ wages.
|Govt pays ER NICs & pension||Yes||No||No||No|
|Govt pays wages||80% up to £2,500||80% up to £2,500||70% up to £2,187.50||60% up to £1,875|
|Employer pays ER NICs & pension||No||Yes||Yes||Yes|
|Employer pays wages||0||0||10% up to £312.50||20% up to £625|
|Employee receives||80% up to £2,500 per month||80% up to £2,500 per month||80% up to £2,500 per month||80% up to £2,500 per month|
HMRC has issued detailed guidance on the following:
(B) Claim and report earnings:
In essence, from 1 July, employers can claim a proportionate amount of 80% of a furloughed worker's salary, based on the proportion of hours not worked out of normal working hours.
To ascertain the normal working hours for those with fixed hours and pay, you take the number of hours worked in the pay period before 19 March 2020. To calculate the normal working hours for those with variable pay, you take the higher of (a) the average number of hours worked in the tax year 2019-20 or (b) the corresponding calendar period in the tax year 2019 to 2020.
Before calculating how much to claim under the scheme, an employer must work out:
Claim periods starting from 1 July must start and end within the same calendar month and must last at least 7 days in that month (and they do not have to be consecutive), unless claiming for the first few days or the last few days in a month. A claim for fewer than 7 days can only be made if the period being claimed for includes either the first or last day of the calendar month, and the period ending immediately before it has already been claimed.
This will be a problem for payrolls which are four weekly, as these will have to be split into more than one claim in order to align with the calendar month end.
This can get complicated, though HMRC provides detailed guidance on deciding the length of the claim..
A simple example might be Mr. S who normally works a 35-hour week, but was fully furloughed up to 30 June 2020. From 1 July 2020 he agrees with his employer to return to work two days a week. So for July he would work for 10 days (70 hours) and be furloughed for 13 days (91 hours) = total hours 161. So the grant to be claimed would be his monthly salary (subject to max £2,500) x 91 (furlough hours) / 161 (total hours) + ER NICs + pension.
However, this logical example does not accord with HMRC's confirmed guidance - as discussed by the ICAEW Tax Faculty - which states that for July the usual hours are not 161, but only 155. This is reached as follows:
You can use HMRC's online calculator.
The following regular payments should be included in calculating 80% of an employees’ wages for hours not worked:
The following must be excluded when calculating wages:
The entirety of the grant received to cover an employee’s furlough pay must be paid to them in the form of money. No part of the grant should be netted off to pay for the provision of benefits or a salary sacrifice scheme.
Where the employer provides benefits to furloughed employees, including through a salary sacrifice scheme, these benefits should be in addition to the wages that must be paid under the terms of the CJRS.
Normally, an employee cannot switch freely out of most salary sacrifice schemes unless there is a life event. HMRC agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.
Apprenticeship Levy and Student Loans
The Apprenticeship Levy must be paid as usual, although grants from the CJRS do not cover the Levy.
Student Loan deductions must continue to be made from wages paid.
National Minimum Wage
At least minimum wage rates must be paid for all hours worked. Furloughed workers who are not working can be paid the lower of 80% of their wages or £2,500 even if, based on their usual working hours, this would be below their appropriate minimum wage.
But time spent training whilst furloughed is treated as working time for the purposes of the minimum wage calculations and must be paid at the appropriate minimum wage rate. This means employers will need to ensure that the wages and furlough payment are enough to cover all working time including the training hours.
Where the pay is less than the appropriate minimum wage entitlement, the employer will need to pay additional amounts to ensure at least the appropriate minimum wage is paid for both working time and 100% of the training time whilst furloughed.
Where a furloughed worker is paid close to minimum wage levels and asked to complete training courses for a substantial majority of their usual working time, employers can seek independent advice or contact Acas.
Claiming for a member of a Limited Liability Partnership (LLP)
If a member of an LLP is treated as an employee (because of salaried members rules), the payments must only be those that are either:
Holidays and other leave
HMRC has issued detailed guidance about holiday pay and other forms of leave.
Under flexible furloughing, an employer will need to work out an employee’s usual hours and record the actual hours they work as well as their furloughed hours for each claim period.
There are two different calculations that can be used to work out an employee’s usual hours, depending on whether they work fixed or variable hours. And you may not get the answer you were expecting, as the ICAEW Tax Faculty discovered when it tried to decipher the concept.
See the example above for Mr S where he works a 35 hour week, meaning he would have 161 working hours in July, but HMRC says he only has 155.
This is quite involved, as per HMRC's helpful guidance.
Following HMRC’s guidance may give employers less grant than they will have expected if they were working on an employee returning to work for a percentage of their usual working week.
HMRC has launched a new online facility to enable employers to correct overclaims of CJRS, though it doesn't work for underclaims.
HMRC can be told about an overclaimed amount as part of the next claim. Employers will be asked when making a claim whether they need to adjust the amount down to take account of a previous error, and the new claim amount will be reduced to reflect this. No further action is required by the employer, but a record of this adjustment should be kept for six years.
Where an error has resulted in an underclaimed amount, the employer will need to telephone the HMRC helpline to amend the claim, not adjust the next claim. As this is an increase in the amount of the claim, HMRC says it will need to conduct additional checks.
Where an error in a claim has been made and the employer does not plan to submit any further claims, HMRC says it is working on a process that will allow the employer to let the department know about the error.
HMRC issued more guidance on this on 26 June.
An employer can claim if they have:
If those criteria are met, the number of employees you claim for in any single claim starting from 1 July cannot exceed the maximum number of employees you claimed for in a claim ending before that date.
Example - an employer who had previously made three claims between 1 March 2020 and 30 June, in which the total number employees furloughed in each claim was 30, 20 and 50. Then the maximum number of employees that the employer could furlough in any single claim starting on or after 1 July would be 50.
This may present a problem for some employers who have previously furloughed teams on a shift basis, meaning the maximum number that can be claimed for from 1 July is lower than the actual number of people who were furloughed in total. If a claim was in fact made for a period listing the whole workforce then this will not be a problem.
There are some exceptions explained in this guidance for employees returning from parental leave where this cap may not apply.
Where staff costs are publicly funded, that money should be used to continue paying staff, rather than using the furlough scheme, except where staff costs are not fully funded by public grants.
Where a company is under administration, the administrator can furlough and claim for employees who have been furloughed for at least 3 consecutive weeks prior to 1 July 2020 by their previous employer.
Administrators should only use the scheme if there is a reasonable likelihood of rehiring the workers. For instance, this could be as a result of an administration and pursuit of a sale of the business.
HMRC has published detailed guidance on which employees can be furloughed, but the key areas are discussed below.
Under Stage II, only employees that were previously furloughed before 1 July can be claimed for.
For claim periods up to 30 June, an employee working reduced hours, or on reduced pay, cannot be furloughed.
From 1 July, employers can bring furloughed employees back to work for any amount of time and any shift pattern, while still being able to claim for the hours not worked. This only applies where a previous claim for the employee was made prior to 1 July 2020.
If an employee has more than one employer, they can be furloughed for each job. Each job is separate, and the grant cap applies to each employer individually.
Employees can be furloughed in one job, but continue working for another employer on their normal wages.
NOTE: HMRC have not yet given an opinion on the interaction of Enterprise Management Incentive (EMI) schemes and furlough, so if an employee holds EMI options, they need to be aware of the tax risk.
Apprentices can be furloughed in the same way as other employees.
A furloughed employee can take part in volunteer work during the hours recorded as being on furlough, as long as it is for another employer or organisation.
Furloughed employees can engage in training in those hours recorded as being on furlough, as long as this does not involved providing services to the employer or any linked or associated organisation.
Where furloughed employees undertake training during the hours which are recorded as being on furlough, they are entitled to be paid at least their appropriate national minimum wage for this time. In most cases, the furlough payment of 80% of an employee’s regular wage, up to the value of £2,500, will provide sufficient monies to cover these training hours. However, where the time spent training attracts a minimum wage entitlement in excess of the furlough payment, employers will need to pay the additional wages.
An employee returning from statutory parental leave after 10 June can be furloughed, even if this is their first time on furlough. The employer can do this provided that:
The maximum number of employees that can be claimed for in these circumstances is the maximum claimed for in any one claim before 1 July, plus any employees being furloughed for the first time due to them returning from parental leave.
HMRC has published detailed guidance on what you can claim if your employee is still on maternity leave, adoption leave, paternity leave, shared parental leave or parental bereavement leave.
Whilst on furlough hours, an employee can undertake union duties, provided they don't provide services to their employer or any linked or associated organisation.
Similarly, furloughed employees on furlough hours and who are pension scheme trustees or trustee directors of a corporate trustee may undertake trustee duties in relation to the pension scheme. However, a professional, independent pension scheme trustee who has been furloughed by the independent trustee company cannot undertake trustee work that would provide services to the independent trustee company, or any organisation linked or associated with that company during furloughed hours.
Employees who are unable to work because they are shielding in line with public health guidance (or need to stay home with someone who is shielding) can be furloughed. Such an employee can continue to be furloughed from 1 July so long as a claim has previously been submitted for them before that date.
Employees not able to work because they have caring responsibilities resulting from COVID-19 can be furloughed, e.g. where they need to look after children. This continues to be the case from 1 July so long as a previous claim was made before that date..
Furloughed employees who become ill, due to Coronavirus or any other cause, must be paid at least Statutory Sick Pay. Subject to eligibility this includes those self-isolating or shielding because of Coronavirus.
It is up to employers to decide whether to move these employees onto Statutory Sick Pay or to keep them on furlough, at their furloughed rate.
If a furloughed employee who becomes sick is moved onto SSP, employers can no longer claim for the furloughed salary. Employers are required to pay SSP, but may qualify for a rebate for up to 2 weeks of SSP if the sickness is related to coronavirus.
Where employers keep the sick furloughed employee on the furloughed rate for the period that they are sick, they remain eligible to claim for these costs through the furloughed scheme. Such an employee can continue to be furloughed from 1 July, so long as they were previously furloughed before that date.
Please see our separate article - Coronavirus Statutory Sick Pay Rebate Scheme
If an employee started unpaid leave after 28 February 2020, they could have been furloughed as long as this was done by 10 June. If they were placed on furlough, they should be paid at least 80% of their regular wages for the hours recorded as being on furlough, up to the monthly cap of £2,500.
If an employee went on unpaid leave on or before 28 February, they cannot be furloughed until the date on which it was agreed they would return from unpaid leave. The final date by which an employer could furlough an employee for the first time was 10 June.
An employee on sick leave or self-isolating due to Coronavirus will get Statutory Sick Pay, subject to other eligibility conditions applying. The CJRS is not intended for short-term absences from work due to sickness.
Short term illness/self-isolation should not be a consideration in deciding whether to furlough an employee. If, however, employers want to furlough employees for business reasons and they are currently off sick, they are eligible to do so, as with other employees.
In these cases, the employee should no longer receive sick pay and will be classified as furloughed. They can continue to be furloughed from 1 July so long as they were furloughed before that date.
Employers are also entitled to furlough employees who are being shielded or off on long-term sick leave, provided they were previously furloughed before 1 July .
Employers can claim under both the CJRS and the SSP rebate scheme for the same employee, but not for the same period of time.
When an employee is on furlough, the employer can only claim under the CJRS, and not the SSP rebate scheme. If a non-furloughed employee becomes ill due to coronavirus, needs to self-isolate or be shielded, then they may qualify for the SSP rebate scheme.
The normal rules for maternity and other forms of parental leave and pay apply, but the employer may need to calculate an employee’s average weekly earnings differently if they were furloughed and then started leave on or after 25 April 2020 for parental leave.
Where an employee is receiving Maternity Allowance while on maternity leave, they should not get furlough pay at the same time. But if the employee has agreed to be put on furlough, they should contact Jobcentre Plus to stop their Maternity Allowance payments.
Where the employee agrees to be put on furlough and ends their maternity leave early, they will need to give the employer at least 8 weeks’ notice, and they will not be eligible for furlough pay until the end of the 8 weeks.
The CJRS can also be used for the following if they are paid via PAYE: office holders (including company directors), salaried members of Limited Liability Partnerships (LLPs), agency workers (including those employed by umbrella companies), and limb (b) workers.
Such individuals can continue to be furloughed from 1 July as long as they were furloughed before that date.
Furlough arrangements for a company director or member of a LLP should be adopted formally as a decision of the company or LLP.
Please see our separate article on how the furlough scheme can apply to directors.
Members of LLPs who are designated as employees for tax purposes (‘salaried members’) under the Income Tax (Trading and Other Income) Act (ITTOIA) 2005 are eligible to be furloughed.
The rights and duties of a member of an LLP are set out in an LLP agreement and in the absence of an agreement, default provisions in the LLP Act 2000, based upon company and partnership law. Such an agreement may include separate agreement between the LLP and an individual member setting out the terms applicable to that member’s relationship with the LLP.
To furlough a member, the terms of the LLP agreement (or any such agreement between the LLP and the member) may need to be varied by a formal decision of the LLP, for example to reflect the fact that the member will perform no work in the LLP for the period of furlough, and the effect of this on their remuneration. For an LLP member who is treated as being employed by the LLP, the reference salary for this scheme is 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.
Where agency workers are paid through PAYE, they are eligible to be furloughed, including where they are employed by umbrella companies.
Furlough should be agreed between the agency, as the deemed employer, and the worker, though it would be advised to discuss the need to furlough with any end clients involved. As with employees, agency workers should not perform any work for, through or on behalf of the agency that has furloughed them during the hours which are recorded as being on furlough, including performing such work through or on behalf of the agency for the agency’s clients.
Where an agency supplies clients with workers who are employed by an umbrella company that operates the PAYE, it will be for the umbrella company and the worker to agree whether to furlough.
Limb (b) workers are dependent contractors who are registered as self-employed, but provide a service as part of someone else's business. They generally must carry out the work personally, rather than being able to send someone in their place.
They can be furloughed, but for those who are self-employed they may instead be eligible for the Self-Employed Income Support Scheme (SEISS).
There is separate guidance on how payments to suppliers of contingent workers impacted by COVID-19 should be dealt with where the party receiving the contingent worker’s services is a Central Government Department, an Executive Agency of a Central Government Department or a Non-Departmental Public Body.
Read more information on contingent workers impacted by COVID-19. This guidance applies to agency workers paid through PAYE, as well as those paid through umbrella companies on PAYE and off-payroll workers supplying their services through a Personal Service Company (PSC).
There may be cases where it is appropriate to claim under the CJRS for contractors who are deemed employees according to the off-payroll working rules.
The public sector organisation wanting to furlough a contractor will have to confirm this with both the contractor’s Personal Service Company (PSC) and the fee-payer (as set out in the off-payroll working rules, usually the agency paying the contractor’s PSC). It should be formally agreed that the contractor is to do no work for the public sector organisation during their period of furlough.
The fee-payer would be able to apply for the furlough payment of 80% of the monthly contract value, up to a maximum of £2,500, as well as the employer NICs on that subsidised wage. The fee-payer would then pay at least the amount of wage-grant received to the PSC, and report the payment via PAYE using the contractor’s details, making the usual tax and NIC deductions for contracts in scope of the off-payroll rules. The PSC would then be required to report the amount it pays to the contractor as deemed employment income via PAYE using box 58A on the PAYE 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.
Where a group of companies consolidate their various PAYE schemes into one after 28 February 2020, the new scheme will be eligible to furlough employees. In these circumstances, the new employer needs to have previously submitted a furlough claim prior to 1 July 2020.
In addition, where a group of companies with multiple PAYE schemes transfer all employees into a new consolidated PAYE scheme after 10 June 2020, the new scheme can continue to furlough and claim for employees that were previously furloughed before 1 July 2020.
In these circumstances, the maximum number of employees that an employer can claim for under the consolidated scheme will be the total of the maximum numbers of employees under a single claim in each scheme that is being consolidated.
A new employer is eligible to claim under the CJRS in respect of the employees of a previous business transferred after 28 February 2020, if either the TUPE or PAYE business succession rules apply to the change in ownership.
A new employer is also eligible to claim under CJRS in respect of the employees associated with a transfer of a business after 28 February 2020 from the liquidator of a company in compulsory liquidation, where TUPE would have applied were it not for the company being in compulsory liquidation. In order to claim in these circumstances, the new employer needs to have previously submitted a furlough claim for the employees before 1 July 2020.
A new employer is also eligible to claim under the CJRS in respect of the employees of a previous business transferred after 10 June 2020 as long as:
In these circumstances, the maximum number of employees that the new employer can claim for will be the total of both:
A new employer is also eligible to claim under CJRS in respect of the employees associated with a transfer of a business after 10 June 2020 from the liquidator of a company in compulsory liquidation where:
In these circumstances, the maximum number of employees that the new employer can claim for will be the total of both:
Read more guidance on TUPE rules.
Read more guidance on business succession.
Furlough agreements must be in writing. Employers must:
Prior to 1 July 2020, employees on furlough cannot undertake any work for their employer other than training. But this changes from 1 July.
From 1 July, employers are able to:
Where an employer wants to flexibly furlough employees, this will need to be agreed with the employee (or reach a collective agreement with a trade union) and keep a new written agreement that confirms the new furlough arrangement.
Not all employees have to be placed on furlough, but where they are they can continue to be fully furloughed if desired (e.g. there is no work for them to do).
Employees cannot undertake any work for their employer during the time they are recorded as being on furlough.
From 1 July, flexible furlough agreements can last any amount of time and employees can enter into a flexible furlough agreement more than once. A furloughed employee just has to work at least 7 days (not necessarily consecutive) in a calendar month.
However, where a previously furloughed employee starts a new furlough period before 1 July, this furlough period must be for a minimum of 3 consecutive weeks. This is the case regardless of whether the 3 consecutive week minimum period ends before or after 1 July.
Example - a previously furloughed employee can start a new furlough period on 22 June which would have to continue for at least 3 consecutive weeks ending on or after 12 July. After this the employee can then be flexibly furloughed for any period. However, after 1 July, employers cannot make claims that cross calendar months, so the employer will need to make a separate claim for the period up to 30 June.
Although flexible furlough agreements can last any amount of time, unless otherwise specified the period that is claimed for must be for a minimum claim period of 7 calendar days (but they don't need to be consecutive in the month, e.g. say working 2 days a week).
During the hours which are recorded as being on furlough, an employee cannot be asked to do any work for the employer or any linked or associated organisation.
The employee can undertake training, volunteer for another organisation, or work for another employer (if contractually allowed)
Employees will still pay the taxes they normally pay out of their wages through PAYE, including pension contributions, unless an employee has opted out or stopped saving into their pension.
Until 31 July, an employer can continue to claim for these costs for the hours the employee is on furlough. But from 1 August, employers will be required to pay all employer NICs and pension contributions (see the furlough payments at a glance table above)
Employees still have the same rights at work, even under furlough, and any grants under the scheme cannot be used to substitute redundancy payments. Though employers can still make a furloughed employee redundant if they wish.
When the government ends the scheme, the employer may need to make a decision, depending on the circumstances, as to whether employees can return to their duties, if they haven't already done so under flexible furloughing. Otherwise, it may be necessary to consider termination of employment (redundancy).
Employment law requires up to 45 days’ consultation of redundancy, meaning employers should be aware of the fact they will start to share wage costs from 1 August, if redundancy is a consideration.
HMRC has produced separate guidance for furloughed employees.
Notice to pay whilst on furlough
Employers can give notice of termination to workers who are on furlough, and the grants can still be claimed under CJRS, despite the employee working their notice.
HMRC chief, Jim Harra, confirmed in evidence to the Public Accounts Committee on 10 June 2020 that there is nothing in the CJRS that prevents an employer from making a furloughed employee redundant.
However, it is not clear from the rules whether an employee's notice pay should be at 80% or 100%. Legal opinion appears to be that it depends.
Furloughed employees continue to accrue leave as per their employment contract.
The employer and employee can agree to vary holiday entitlement as part of the furlough agreement, however almost all workers are entitled to 5.6 weeks of statutory paid annual leave each year, which they cannot go below..
Employees can take holiday whilst on furlough and must be paid their normal rate of pay, or, where the rate of pay varies, calculated on the basis of the average pay received by the employee in the previous 52 working weeks.
So where a furloughed employee takes holiday, the employer should pay their usual holiday pay in accordance with the Working Time Regulations. Employers will be obliged to pay employees who are on holiday additional amounts over the grant, though will have the flexibility to restrict when leave can be taken if there is a business need and the correct notice is given.
This applies for both the furlough period and the recovery period.
If an employee usually works bank holidays, then the employer can agree that this is included in the grant payment. If the employee usually takes the bank holiday as leave then the employer would either have to top up their usual holiday pay, or give the employee a day of holiday in lieu.
If contractually allowed, employees can work for someone else whilst on furlough.
For any employer that takes on a new employee who is furloughed from another employment, they should ensure they complete the starter checklist Statement C.
CJRS grants are taxable, as per the Finance Bill.
Payments received by a business under the scheme are made to offset these deductible wage costs. They must therefore be included as income in the business’s taxable profits.
Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.
Individuals with employees that are not employed as part of a business (such as nannies or other domestic staff) are not taxable on grants received under the scheme. Domestic staff are subject to tax and NICs on their wages as normal.
Bishop Fleming has expressed concern that furloughed worker grants could compromise R&D Tax Credit claims.
The Incentives and Reliefs team at HMRC has confirmed to us that the grants will not compromise R&D Tax Credit claims. This is because the grants are for funding the main trade and not an R&D project, and furloughed employees cannot work and therefore cannot be involved in the project.
For further help, please check out our Business after COVID-19: Transition Knowledge Hub.