Update: Coronavirus – Job Retention Scheme

Whilst there has been no official announcement from HM Treasury on the how the Job Retention Scheme is going to work, the Institute of Chartered Accountants for England and Wales (“ICAEW”) have now published their understanding on how the scheme will be applied.

They stipulate – and we must reiterate this point – that this is just their understanding of the processes and applications and is not the final guidance on the scheme. IT should not be relied upon as advice but is the only indication currently available on the scheme.

The following are the headline aspects of their understanding. The full document can be found on their website here.

What has been announced so far?

The only official announcement that has been made so far by the Government was the announcement of the scheme on 23 March 2020. That detailed the outline of the scheme as follows:

All UK businesses are eligible, ‘any employer on the country, small or large, charitable or non-profit’ to use the Chancellor’s words. It is available to employees on the payroll at 28 February 2020 who have been furloughed under existing employment law requirements.

Furlough is from 1 March 2020, so will 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,

Furloughed members of staff must not work for the employer during the period of furlough.

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.
  • The portal is not yet built and may take some time. In the interim, businesses are being directed to apply to the Coronavirus Business Interruption Loan Scheme to support them where applicable.

The scheme pays a grant to the employer. This is not a loan and there should be no need to repay this to HMRC. The grant will be paid to the employer through the new online system

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.

Maximum grant will be calculated per employee and is the lower of:

  • 80% of wage for all employment costs
  • £2,500 per month

The ICAEW comment that it is their understanding (but not officially confirmed by The Treasury) that this is intended to cover all salary, employer NIC and employer pension contributions.

ICAEW Understanding – Illustration

X Ltd employs Mr A at an annual salary of £24,000, so £2,000 per month. Mr A has opted out of auto enrollment.

Each month, Mr A currently receives net pay of £1,665 which is after deducting PAYE of £191 and employees NIC of £144. On this salary, the employer pays employers’ NIC of £174.

The available grant for the employer is the lower of

(a) 80% of (£2,000 + £174), and 

(b) £2,500

So, a grant of £1,739.

The cash required by X Ltd to furlough based on maintaining the existing salary is £435 per month. It is a matter for employment law whether the employer is required to pay this top up. Discussions with employees may have agreed that the employee has agreed to a different arrangement during their furlough.

The additional £435 is payable unless the contract has been altered and salary reduced under existing employment law. Unless this is done, the company is required to ensure that the employee is paid in full according to their existing employment contract.

Notes to illustration based on an extended understanding of how the scheme will work

  1. If Mr A had not opted out of auto enrollment, X Ltd would also be making pension contributions on his behalf. If so, the available grant is based on 80% of (gross salary + Employers’ NIC + employers pension contributions paid), subject to the monthly cap of £2,500.
  2. We understand that the rules for the scheme are being designed with underlying reference to employment law. If the individual is still under contract, Mr A can expect to receive his salary in full. The £1,739 grant paid to X Ltd should not be taken as the new maximum cost of employment to the employer unless the contract has been redrafted.
  3. Subject to the employment contract and any amendment, the salary which the employer actually pays the employee during the furlough period may be different to the pay paid used as the reference period and upon which the grant figure is based.
Other matters

The ICAEW has also published the additional guidance on the following areas.

Owner / managed companies

Many owner managed company director/shareholders pay small salaries and the balance of income as dividends. The scheme does not extend to dividends. Only the salary is relevant to the scheme.

How is payment going to work in practice?

We understand that the employer will pay the contractually agreed amounts as required by the employment contract in the usual way. This will involve paying the employee, and HMRC the PAYE and both primary and secondary National Insurance Contributions. The grant will be paid directly to the employer.

What is the £2,500 maximum grant based on?

The £2,500 monthly grant covers all employment costs, ie, salary, employer pension contributions required by auto enrollment (if applicable), and employer NIC. 

The earnings period to be used to determine the maximum grant has yet to be clarified. 


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