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In recent days, we've had some more clarification on furlough payments. In today's article, we'll dig a little deeper into how the payments work, what they cover and what's excluded.
On the surface, the furlough payments for the Coronavirus Job Retention Scheme seem pretty simple. You pay your staff as normal, and then claim back 80% of their salary (or £2,500, whichever is lower) from the government.
Please check out our article on How To Furlough Employees for a thorough overview of the subject.
However, business owners and accountants have already started asking questions. What do these payments cover? How about taxable benefits? What are the tax, pension and NI implications? In this article, we'll run through what we know so far.
You may find the HMRC page COVID-19: Support For Businesses useful. And if you’d like more information about the financial, political and tax changes so far, check out our Coronavirus Tips. And be sure to visit our Coronavirus Update page.
Furlough Payments - The Basics
- Employees must have been on the PAYE payroll since 28th February 2020
- Furlough status can be backdated to 1st March 2020
- HMRC will reimburse the lower of 80% of salary or £2,500 per month
- Furlough runs in periods of 3 weeks
- The scheme is set to run for at least 3 months
Tax, Pension & NI
From the perspective of the employee, they have to continue to pay all the previous payroll taxes (Income Tax and National Insurance) via PAYE. That is, they will receive their furlough payment net of deductions, just as they would a salary.
As an employer, you need to maintain minimum pension payments (currently at 3% of salary). Fortunately, this is covered. HMRC will send you a grant (as above) plus:
- Associated (employer) NI cost
- Minimum (employer) pension contribution
As we explained in out article I've Just Been Put On Furlough, the employer is not obliged to top up payments. If you want to, you are free to pay the employee what they were on before furlough. But, as long as you pay them what you're receiving from HMRC (net), you don't have to make up the difference.
Fees, Commission, Bonuses & Benefits
The subsidy scheme applies to normal salary. You can't claim for fees, commission or bonuses that sit outside the normal salary structure.
This will also be the case for most benefits. The exception is minimum pension contributions (as explained above). It looks at the moment as if other benefits will need to be maintained, and can't be claimed for. If you want to stop benefits during furlough, you'll need to specifically agree this with the employee.
In practice, most businesses seem to be continuing benefits, especially as they have often paid them in advance.
It has been suggested that certain health benefits (health insurance, death-in-service) might be affected by furlough. We'd advise you to double-check with your scheme provider to see how the furlough process would affect a claim. For example, would the claim use the normal or furloughed salary?
Minimum Wage & Living Wage
Some of our clients have asked if they need to make sure furlough payments are meeting minimum/living wage criteria. The answer is no. Minimum wage rules only apply if the employee is working.
The only exception is if you have asked your staff to complete training while on furlough. For staff on training, you need to make sure that their payments cover the minimum/living wage. This only applies for the hours they are on training (ie not for a standard month's work).
At the moment the rules around furlough and its alternatives are changing daily. We'll have more information as soon as it becomes available. Be sure to check our blog for updates.
If you'd like to discuss your options during the coronavirus crisis, please get in touch. We are staying on top of all the announcements from the government and can help you navigate this challenging time.