Furloughing & home-working allowances: FAQs & answers for employers

Below are a selection of some common questions that have arisen over the course of the last week since the announcement of the Government support measures, collated by Gareth Costello from DTE Tax Consultancy.

We also include further details of the updated guidance on the Job Retention Scheme (Furloughing) which was issued over the weekend.

• Job retention scheme – ‘furloughing employees’
• Employer criteria – online PAYE registration necessary.

HMRC have confirmed that in addition to the requirement that a PAYE payroll scheme is in place, employers must have:

• created and started a PAYE payroll scheme on or before 28 February 2020
• enrolled for PAYE online – this can take up to 10 days
• a UK bank account

Bearing in mind the delays in setting up online registration, businesses are urged to start this process as soon as possible.

Do employers have to pay wages before claiming a reimbursement?

The job retention scheme anticipates that reimbursements will be made based on a claim using the amounts in the employer’s payroll – either shortly before or during running payroll.

There have been press reports of certain high-profile businesses in the hospitality sector that have suggested they will delay paying employee wages until the reimbursements are received.  All employers using the scheme need to be aware that HMRC are expected to undertake retrospective audits of the scheme payments to verify compliance with the requirement that employees have been paid the full amounts due to them.

• Company Directors and the required formalities

HMRC have now updated the scheme guidance to confirm that company Directors may be furloughed and that undertaking normal statutory duties and responsibilities does NOT in itself prevent a Director from being furloughed providing “…they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.”

HMRC have also confirmed this also applies in the context of Directors of personal service companies.

HMRC have included the requirement that where a Director is furloughed they would expect to see formal adoption and minuting of the decision.

The guidance says – “Where one or more individual directors’ furlough is so decided by the board, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned”.

• Salaried members of LLPs

HMRC have confirmed that individuals who are members of LLPs but who are

treated as employees, can also be furloughed.  It is expected the LLP members agreement will need to be varied to reflect the requirement that the member cannot undertake any work, whilst furloughed, for the LLP.

• Benefits in Kind and Salary Sacrifice Schemes

The reference salary to which the 80% applies should not include the cost of non-monetary benefits provided to employees, including taxable Benefits in Kind.

Similarly, benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should also not be included in the reference salary.

Where the employer provides benefits to furloughed employees, this should be in addition to the wages that must be paid under the terms of the Job Retention Scheme.

Normally, an employee cannot switch freely out of a salary sacrifice scheme unless there is what is referred to as a ‘life event’. HMRC have confirmed that COVID-19 does represent  a life event that could warrant changes to salary sacrifice arrangements, but only if the relevant employment contract is updated accordingly.

• Employer and employer auto-enrolment pension contributions

HMRC will reimburse the employer for their auto-enrolment pension contributions.  The amount of furloughed pay received by an employee will be after deductions for PAYE, National Insurance AND employee auto-enrolment pension contributions unless the employee has opted out.

• Taking a second job whilst ‘furloughed’.

There is nothing to prevent an employee taking a second job providing this is not with an employer in any way connected with their main employer, and providing the terms of their employment contract permit this.

Employees will not be issued with a P45 whilst furloughed as they remain employed, hence, when being added as employees for their new employer, the new starter declaration ‘Statement C’ should be completed to indicate this is their second, concurrent employment.

• National minimum wage (NMW) requirements

The NMW requirements do not apply to furloughed payments as the provisions only apply where the employee is working (a strict requirement of the scheme is that no work is done by the employee).  If an employee is required to undertake training then it is necessary to ensure the NMW requirements are complied with for these times.

This is also the case for apprentices that are furloughed.

• Home working – tax-free payments/allowances

Employees working from home are able to claim a weekly allowance of £6 per week (£4 per week up to 5th April 2020) to cover the additional costs (extra heat, light etc) arising.  There is no need to keep records or invoices for this allowance.

The amount may either be paid tax-free by the employer, or claimed as an allowance by the employee (typically on their self-assessment tax return form but an earlier claim could be made to HMRC in writing once the home-working has finished).

*This article was originally published on the DTE website. To read more about the latest updates and advice regarding the coronavirus, please visit DTE Covid-19 Business Support Hub.

If you have any questions or need help with any matters discussed above, please contact us today for further support.