A number of important changes have been announced in the last week or so which affect employers who have used or are still using the Coronavirus Job Retention Scheme.
This update covers for following:
- The government has announced more details on the furlough bonus scheme
- New rules came into force on 31 July requiring employers to use furloughed employees' normal pay to calculate statutory payments including redundancy and notice pay
- The government also gave further guidance on overclaims and penalties
Furlough bonus scheme – more details announced
As part of the government's plans to support the UK economic recovery, it recently announced plans to pay a Job Retention Bonus to employers who keep their furloughed employees on after the Coronavirus Job Retention Scheme ends on 31 October 2020. The government has now released further details of how employers qualify for the bonus.
The Job Retention Bonus is a one-off payment to employers of £1,000 for every furloughed employee who remains continuously employed through to 31 January 2021. Employees must earn at least £520 a month on average between the 1 November 2020 and 31 January 2021 to be eligible.
Employers will be able to claim for all employees who:
- were furloughed and had a Coronavirus Job Retention Scheme claim submitted for them that meets all relevant eligibility criteria for the scheme
- have been continuously employed by the relevant employer from the time of the employer's most recent claim for that employee until at least 31 January 2021
- have been paid an average of at least £520 a month between 1 November 2020 and 31 January 2021 (a total of at least £1,560 across the 3 months). The employee does not have to be paid £520 in each month, but must have received some earnings in each of the three calendar months that have been paid and reported to HMRC via Real Time Information (RTI) reporting system
- have up-to-date RTI records for the period to the end of January
- are not serving a contractual or statutory notice period, that started before 1 February 2021, for the employer making a claim
In order to qualify, employers must have:
- complied with their obligations to pay and file PAYE accurately and on time under the Real Time Information (RTI) reporting system for all employees
- maintained enrolment for PAYE online
- a UK bank account
- kept their payroll up-to-date and accurate and address all requests from HMRC to provide missing employee data in respect of historic Coronavirus Job Retention Scheme claims. Failure to maintain accurate records may jeopardise an employer's claim.
Payment of the bonus may be withheld where HMRC believes there is a risk that the employer's claims under the furlough scheme may have been fraudulently claimed or inflated until the enquiry is completed. Where a furlough claim for an employee was incorrectly made, a Job Retention Bonus will not be payable.
Employers will be able to claim the Job Retention Bonus after they have filed PAYE for January 2021 through GOV.UK. Payments will be made to employers from February 2021.
Employers can start preparing now by making sure their furlough claims are accurate and any amendments necessary are notified to HMRC, and ensuring their employee payroll reporting is up-to-date and accurate.
Further details are due to be published by the end of September 2020.
New law on redundancy and notice pay for furloughed employees
The government has brought in new rules aimed at ensuring that statutory payments to which furloughed employees are entitled, such as redundancy or notice pay, are based on their normal pay, rather than reduced furlough pay. The new rules came into force on 31 July 2020, having only been announced the previous day (presumably to minimise the ability to circumvent the new rules).
Calculating Redundancy Pay
For employees with normal working hours where pay doesn't vary with the amount of work done, the new rules only apply where the calculation date for redundancy falls on or before 31 October (when the furlough scheme is due to end). This is presumably because where their employment terminates after the furlough scheme, their pay should return to normal so any redundancy pay would be based on their normal rather than their reduced furlough pay.
For employees whose pay varies with the amount or time of work done, such as piece workers, shift workers or those with no fixed hours, their redundancy pay is averaged out over the 12 weeks before the calculation date for redundancy. Under the new rules, provided they have been furloughed for at least one week during those 12 weeks, their redundancy pay is based on full pay rather than their reduced furlough pay.
These rules will not apply to employees whose employment terminated for redundancy before 31 July, except for those whose statutory notice would have expired on or after 31 July had the full statutory notice been given. The rules do not affect the statutory cap on redundancy pay which is based on a week's pay capped at £538 (and subject to a maximum award of £16,140).
Calculating Notice Pay
The new rules also apply to the calculation of statutory notice pay. As the new rules came into force on 31 July, they do not apply to notice pay where notice was served before that date. For employees who are entitled to contractual notice of at least one week more than statutory minimum, the new rules do not appear to apply. Although this may not have been the government's intention, this could take some furloughed employees out of the scope of the new rules so that in some cases, notice pay could still be based on reduced rates agreed for furlough. Calculation of notice pay can be complex so it is important to take advice if in doubt.
Updated HMRC guidance on overclaims and penalties
On 28 July, HMRC published two guidance notes: Overclaims guidance and Penalties guidance.
The Overclaims guidance sets out time scales for rectifying any errors, broadly expanding on guidance already published in "Claim for wages through the Coronavirus Job Retention Scheme".
The Penalties guidance contains information about how HMRC will recover overpayments and sets out potential penalties relating to overclaimed grants under the scheme.
Broadly, if an employer has overclaimed a grant, it must repay it as soon as possible. It can do this by adjusting a subsequent claim or if no further claim will be submitted, by contacting HMRC. If it has not repaid an overclaimed grant in this way, it must notify HMRC within the notification period set out in the overclaims guidance (broadly the latest of: 90 days of receiving the overclaimed grant or 90 days after the circumstances changed meaning the employer was no longer entitled to the grant; or 20 October 2020).
Where an employer has underclaimed, they will need to contact HMRC. Underclaims relating to the period before 30 June 2020 are not possible after 31 July 2020.
HMRC may recover an overpaid grant by making a tax assessment for the amount the employer was not entitled to and has not repaid. Payment is due within 30 days after notification of the assessment. Interest may be charged on late payments. There will also be a late payment penalty if payment remains outstanding for 31 days after the due date.
HMRC may impose a penalty of up to 100% of the overclaim, on employers who fail to notify HMRC that the employer is chargeable to income tax on an overclaimed grant within the notification period. In determining the amount of penalty, HMRC will consider whether that failure was "deliberate and concealed". This would be the case if the employer knew it was not entitled to the grant, or knew it had stopped being entitled to it, and did not notify HMRC of the overclaim within the notification period. They may also be named and shamed by having their details published under the Publishing details of Deliberate Defaulters regime. However, HMRC has confirmed that it will not charge a penalty if the employer did not know it had been overpaid at the time it was received, or at the time that circumstances changed and if the employer repaid it during the "relevant time period". For a company, the relevant time period ends 12 months from the end of the company's accounting period. For a sole trader or partner, it ends on 31 January 2022.
Finally, in certain circumstances, company officers may also be personally liable to pay the tax charged on their company's overpaid grants under the scheme where the officer has deliberately made a claim to which the company was not entitled or if the company is in insolvency and tax cannot be recovered from the company.
For more information
The Clyde guide to the Coronavirus Job Retention Scheme 1 March to 30 June 2020
The Clyde guide to the second phase of the Coronavirus Job Retention Scheme 1 July to 31 October 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.