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04 May 2020

Claiming for overtime, commission and bonuses when staff are furloughed

Tax Tips – Business Question:

I run a small family business and all my staff are unable to work as our customers are all closed. I am looking to make a claim under the Coronavirus Job Retention Scheme (CJRS), however many of my staff are paid overtime, bonuses and commission on a monthly basis due to the nature of our work. How do I work out the amount to claim under the scheme?

‘The Coronavirus Job Retention Scheme – based on the 80/20 approach as per the Pareto Principle – gives businesses an invaluable lifeline but they must ensure that they follow the rules of the scheme’ says Feargal McCormack

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The chancellor announced the scheme on 20 March 2020.  A wide range of employees (e.g. full/part time, agency employees, apprentices, and employees on ‘zero-hour’ contracts) are covered by the scheme. Furloughed employees must be on the payroll on or before 19 March 2020 and notified to HMRC on a RTI submission by that date.

The CJRS provides a grant to businesses for employees who have ceased to work temporarily as a result of the Covid-19 crisis.  The scheme commenced on 1 March 2020 and employees can be furloughed from that date (on a back-dated basis).  It is now set to last until the end of June 2020 but the Government may extend it should circumstances require so.

To qualify under the CJRS, businesses and other establishments (such as ‘not for profit’ organisations) must have a current UK bank account and they must have made a Real Time Information (‘RTI’) submission in respect of the relevant employee by 19 March 2020 (an important change from the original HMRC guidance).  Consequently a competent CJRS claim can only be made for an employee if an RTI submission has been made for them by this date.

There are no further restrictions based around size or business sector.

Businesses must calculate each furloughed employee’s entitlement. The CJRS grant for each furloughed employee is 80% of their ‘normal’ salary or wages, ‘capped’ at £2,500 per month. While past overtime can be included in the figure for ‘normal’ salary/wages, it is not possible to include discretionary bonuses, tips and non-cash payments (i.e. benefits in kind).  Similarly, benefits provided via a salary-sacrifice arrangement are excluded.  However, in any event, the ‘base’ salary/wage value is always subject to the maximum monthly limit of £2,500.

The full amount of the CJRS subsidy must be paid over to the employees and directors. In addition, the CJRS grant covers the relevant employer national insurance contributions (NICs) and the employers’ minimum automatic enrolment pension contributions on the reduced pay, where appropriate.  Apprenticeship levy payments are not covered and must still be paid by the business.

For those on fixed salaries, the calculation is simply based on their salary per their last pay period before 20 March 2020.  HMRC has indicated that where an employee’s ‘reference’ salary has been taken at 28 February 2020 (in accordance with earlier guidance), this can be used instead if different.

When considering the amount to claim, HMRC states that you should include the regular wages that you pay to your furloughed employees, including compulsory overtime, bonuses, and commission. However, the following must be excluded:

  • Payments made at the discretion of the employer. i.e. there is no contractual obligation to pay the amounts. This includes discretionary bonuses and commission, plus tips.
  • Benefits in kind.
  • Any non-cash payments.

Employees on variable pay can claim the higher of either the same month’s wage from 2019 or the average of monthly earnings from the 2019/20 tax year. For those employed for less than a year, an average monthly earnings figure can be used.

The CJRS claims and calculations etc. are made on a self-certifying basis and HMRC has stated that it reserves the right to subsequently audit the CJRS claims.  It is therefore strongly recommended that businesses prepare a contemporaneous paper to document their furloughing arrangements and computations.  This should include the business case for the furloughing the relevant employees/workforce groups as a result of Covid-19.  All this information is likely to provide useful evidence in the event of a subsequent HMRC inspection.

Our payroll and Covid 19 team at FPM are here to support and advise businesses with all aspects of the CJRS.

The advice in this column is specific to the facts surrounding the questions posed.  Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

Contact Feargal

Feargal McCormack / Managing Director

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