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COVID-19 | Coronavirus Job Retention Scheme | FAQs Employment Tax


United Kingdom

We are all navigating uncharted waters as business and society faces up to the impact of COVID-19.  We very much hope you and your loved ones remain in good health. 

 Please be assured that Fieldfisher is continuing to work with clients to navigate COVID-19 related issues and on business as usual needs.  Do get in touch with us if you would like to chat anything through.

Current official guidance is located here:

The following FAQ document is based on this guidance issued by HMRC and the Government on 26 March 2020. This document is not intended to replace this guidance but to supplement it with useful information for employers particularly from a tax perspective. The content of this document is based on informed analysis of likely scenarios. It is expected that certain issues will be officially clarified over the coming weeks and it is possible that future guidance will depart from what is suggested in this document. Fieldfisher LLP strongly suggests that employers review all the latest guidance available, or seek further advice on any actions taken under the Coronavirus Job Retention Scheme. Fieldfisher LLP shall not be liable for any damage arising in contract, tort or otherwise from the use of, or inability to use, this document, or from any action or decision taken as a result of using this document.


1.    What can I recover from HMRC?
HMRC, which will administer the Coronavirus Job Retention Scheme, will pay employers a grant worth 80% of an employee’s usual wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage.

2.    Do I need to deduct PAYE from the payment to the employee?
Yes. HMRC have confirmed that 'while on furlough, the employee’s wage will be subject to usual income tax and other deductions.'

The payment the worker receives is still paid under an employment contract. Although the worker is not doing work, there will still be a 'live' employment contract. Earnings paid in respect of non-work periods are often subject to Income Tax and employee National Insurance Contributions, so that this is not really that unusual. Payments in lieu of notice are an example of such payments. 

3.    Do I need to deduct automatic enrolment employee pension contributions?
Guidance does confirm that 'while on furlough, the employee’s wage will be subject to usual income tax and other deductions.' Consequently, we would consider other deductions including automatic enrolment employee pension contributions, will need to continue to be made. 

4.    Can employers and employees suspend salary sacrifice arrangements? 
Legal advice should be sought before suspending salary sacrifice arrangements as these arrangements have been contractually agreed and would, in general, have to be terminated and dealt with subject to that agreement. In some cases, cancellation will mean employers and employees may have to pay more tax and National Insurance Contributions so we would advise carrying out a cost-benefit analysis before embarking on this step.

5.    Can I pay less than 80% (or £2,500 if applicable) and still qualify for the scheme? 
We consider it unclear whether an employer can pay less than 80% if they wanted to. While early announcements stated that the Government would give a grant for 'up to 80%' this language has now gone from the guidance, so it is possible that a grant may be denied if the employer paid less than 80% (or the capped amount if applicable), even if the employer only claims from HMRC what has been paid to the employee.   

6.    How is the subsidised wage calculated? 
For full-time and part-time salaried employees, the employee’s actual salary before tax, as of 28 February 2020 should be used to calculate the 80%. Fees, commission and bonuses should not be included.
If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, employers can claim for the higher of either:
  • the same month’s earning from the previous year; or
  • average monthly earnings from the 2019-20 tax year. 
If the employee has been employed for less than a year, employers can claim for an average of their monthly earnings since they started work.

If the employee only started in February 2020, employers ought to pro-rata their earnings so far, to calculate the amount they can claim. 

7.    What about the National Living Wage/National Minimum Wage? 
The National Living Wage (NLW) / National Minimum Wage (NMW) is calculated on the basis of the hours spent working. Since furloughed workers must not be working, they must be paid the lower of 80% of their salary, or £2,500 even if, based on their usual working hours, this would be below NLW/NMW.

However, furloughed workers are allowed under the scheme to undertake training so long as this does not amount to providing services or generating revenue for, or on behalf of the employer. Employers should note that if workers are required to complete training whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised. Guidance would suggest employers would not be able to claim a grant for anything that exceeds 80% wage (or £2,500) limit. Thus, it is more likely than not that employers may have to carry the cost of training themselves where the hours spent training would mean that the subsidised payment falls below the NLW/NMW. That cost would include any 'top up' required to reach the NLW/NMW, and employer National Insurance Contributions and minimum automatic enrolment employer pension contributions that may fall to be due on that amount.

8.    Can I claim for periods which occurred prior to the employee consenting to be put on this scheme?
It seems employers will be able to claim for the grant from 1 March 2020, even if they put workers onto the scheme (and received employee consent) after that date, provided, of course that the employee and employer and the arrangement between them qualify for a claim (note for example the requirement to have been on payroll before 28 February 2020 or bar in respect of those employees who were on unpaid leave before that date).


9.    What employer National Insurance Contributions and pension contributions can I reclaim? 
All employers remain liable for associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on behalf of their furloughed employees.

Guidance has been clear that employers can receive a grant for covering the associated employer National Insurance Contributions and minimum automatic enrolment employer pension contributions on the subsidised wage. This means that if employers choose to top up the subsidised wage, they will have to pay for any employer National Insurance Contributions and automatic enrolment employer pension contributions on the 'top up' payment themselves. In addition, the cost of any defined benefit pensions and of any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income above the lower limit of qualifying earnings (which is £512 per month until 5 April and will be £520 per month from 6 April 2020 onwards) will also have to be carried by the employer. Where the employee is an active member of an occupational pension scheme, a furloughed employee would be likely to fall within the temporary absence rule under the scheme rules. Employers should seek employment and pensions advice on whether additional contributions may be stopped or suspended under such a rule.

HMRC have not yet issued guidance on how associated employer National Insurance Contributions and minimum automatic enrolment employer pension contributions on the subsidised wage are to be calculated. This suggests that some special rules may apply. These are likely to relate to how employers should establish the secondary threshold since it might be unclear that this stage whether this should be done on the weekly, monthly or annual basis in respect of the furloughing payment. Generally, one would not expect these payment for individual employees to be very substantial (unless the secondary threshold is changed) since the maximum amount under the scheme is £2,500. 

10.    How do I account for payments under the scheme – are there any risks?  
Guidance states that 'payments received by a business under the scheme are made to offset these deductible revenue costs. They must therefore be included as income in the business’s calculation of its taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles. Businesses can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.'
As a result it is worth considering, and if need be, seeking advice on what impact accounting for grant monies as income may have on companies in respect of parent companies, holding companies, lenders and individuals with claims. It may also be worth considering the Corporation Tax consequences of receiving grant monies and the overall neutrality of the scheme in light of that.


11.    How should I claim?
HMRC is working on a system to capture and process any claims. The system is expected to be ready some time in April. Guidance suggests that claims can be made on a volume basis, so there would not be a need to make a claim for each individual furloughed employee. 

12.    How often can I claim? 
Guidance states that employers 'can only submit one claim at least every 3 weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until the 1 March if applicable.'

While not entirely clear, employers should assume that they cannot make more than one claim every 3 weeks regardless of whether the claim is for one employee or several. 

The most reasonable conclusion is that this limitation of claims is not based on a 'group' or legal entity but the entity registered for payroll and which usually pays PAYE, since HMRC's process will be focused on its existing PAYE systems and processes. However, this is not entirely clear. 

Within the parameters given, employers may have some flexibility in how often to place claims with HMRC. It is likely that HMRC will prefer large infrequent claims to small repetitive claims to avoid an excessive administrative burden. However, smaller and more frequent claims may assist in identifying issues early (for example if HMRC does not approve the claim) and help employers with cash flow issues.


13.    Will I be able to keep the payment and are there circumstances where I may have to return all or part of what I have been paid? 
It is clear that the money paid is a grant and not a loan. As such, it would normally not be repayable unless HMRC has overpaid or paid out in cases where it should not have done so because not all the conditions have been met.

14.    What might happen if HMRC overpay or pay out incorrectly?  
HMRC is not generally in the habit of administering such an extensive money distribution scheme. Many of the functions it will be performing will be new. While legislation has been made which allows the Treasury to set out HMRC's powers, the Treasury has not yet done so at the time of writing. 

One would expect HMRC's powers to be modelled along its current collection powers. As such, HMRC will likely to be able to go back 4 years to recoup payments that were not due. Where an incorrect payment was made as a result of careless behaviour one would expect HMRC to recoup payment for a period of 6 years. Finally, where HMRC have made an incorrect payment as a result of deliberate behaviour it is likely that it will have 20 years to recoup it. 

One would also expect late payment interest to be payable on any incorrectly made grant and penalties to be applied. 

In light of the above, we would strongly advise clients to collect and keep the evidence needed to justify that they qualify for the scheme and that any grants applied for have been properly calculated. It is likely that HMRC will obtain powers (or will have modified existing powers) to seek information from employers and third parties. 
Should conflicts arise, Fieldfisher LLP has a team of experienced tax disputes lawyers who have considerable experience resolving disputes with HMRC. 

15.    Can HMRC refuse me to give me the grant? 
The conditions set by current guidance are relatively generous and non-descript. One would not expect HMRC to have powers to withhold payment where all conditions are met and employers can evidence that they are. 
HMRC will have detailed records to hand through the PAYE system, and employers should be careful to carry out calculations and to be able to justify them. HMRC's guidance does suggest that there will be a level of review of eligibility before payments are made. 

In any case, it is important for employers to have and truthfully create the correct records to prove all conditions have been met (see question 16 below). Under the circumstances, and in light of the current and short duration of the period of the scheme, we would not initially expect HMRC to refuse payments at the beginning of the scheme. The current way of challenging any refusal would likely involve seeking to judicial review the decision, which is difficult and very expensive. In time (and especially if the scheme continues for longer than 3 months), we would expect an administrative review process, with a potential second level Tax Tribunal review process, for challenging decisions. Deadlines during these processes are usually brief (in tax disputes, mostly 30 days) so that employers should act quickly to preserve their rights. 

There may be some areas of uncertainty, over who, and what qualifies. For example, it is currently difficult to understand what 'UK organisations with employees' actually means, and whether foreign companies with UK based employees and offices would qualify. Under such circumstances, we would advise employers to consider redundancy in the first instance and then to actively seek written guidance / a commitment from HMRC and to get a clear an unambiguous statement. This in itself may still be difficult to enforce and is likely to take some time to obtain (if at all), however, it could potential strengthen any employer's position at a later stage. We advise employers to carry out a careful risk analysis and would normally suggest seeking legal advice, if there is any doubt.

16.    What evidence will I need for HMRC? 
HMRC has expressly confirmed it will retain the right to retrospectively audit all aspects of your claim.
To be eligible for the subsidy employers should write to their employee confirming that they have been furloughed and keep a record of this communication. It is vital that businesses are able to provide proof that a worker has been furloughed. 

In addition, we would advise that employers review the applicable guidance (indicating what date it was accessed and where) and explain in the letter or email exactly why the arrangement with the individual employee qualifies for the scheme, and what is being done by the employer. Therefore, it should include (for example): 
  • A description of the type of employee (full-time, part-time, employees on agency contracts and employees on flexible or zero-hour contracts) stating (with reference to the Guidance and the date accessed) that they fall within the category of employee that prima-facie qualifies. 
  • Confirmation that the employee was on PAYE payroll as of 28 February 2020. 
  • Confirmation that the employee was not placed on unpaid leave before 28 February 2020 (if applicable). 
  • An explanation of why the worker was furloughed. 
  • The duration of any period of redundancy since 28 February 2020 and the date the employee was rehired (if applicable) or any period the worker was on Statutory Sick Pay since 1 March 2020 and the date the worker was furloughed (if applicable). 
  • Clear instructions that the employee is not allowed to work or generate any kind of revenue inclusive of a requirement to inform a designated person in the organisation immediately if the employee is asked to work, or believes they should work, and not to do so unless it is confirmed that they can. 
  • The basis on which the employer has calculated, that is, the lower of 80% of an employee’s regular wage or £2,500 per month. We note that guidance is available on this point and we advise to reference it. 
  • The amount the employer is expecting to pay the worker.

This letter should be kept for a minimum period of 7 years for records in case HMRC wish to carry out a check. It is important to write the letter with a view to it becoming evidence for HMRC at a later stage. In addition, employers may wish to explain to furloughed employees that you are required by law to deduct PAYE, and make any other usual deductions. The amount they receive is net of tax although, since the amount is capped, we would expect much of it to fall into the employee's annual allowance and the Basic Rate tax band especially from the new tax year starting 6 April 2020. 

In addition, we advise that records be kept to prove the employee is not working. These might take different forms depending on your business. 

Fieldfisher LLP is happy to advise you on how you might evidence that the worker is not working. We are also happy to provide an appropriate template letter or email.  

This document was prepared by Christopher Kientzler, dispute resolution lawyer and tax specialist at Fieldfisher and Richard Kenyon, a partner in the in the employment and pensions group. For more information on the firm's COVID-19 work and its employment and tax expertise, please visit the relevant pages of the Fieldfisher website.