How to calculate a Furlough Claim

How to calculate a Furlough Claim

By Ryan Meredith

The government has been releasing regular updates to its advice on furlough including how to calculate the size of the claim you are entitled to make. We've captured the main points here.

Who is eligible?

Anyone that has been paid through PAYE for a pay period prior to 19th March where an RTI submission has been filed.

How much can I claim for furloughed employees?

You can claim the higher value of:

  • 80% of the employee’s salary
  • £2,500

These calculations are based on the employee’s salary for payrolls complete before 19th March 2020.

Employees whose pay varies is a little more complex and the above calculation should be applied to the higher of:

  • Average wages paid for 2019/20 (pro-rata if the employee joined partway through the year)
  • The same month's wages from the corresponding month in the previous year.

What if my employee is entitled to receive commission or bonus payments?

HMRC are very clear that the amount you can include when calculating the 80% of employee’s wages can include the following:

  • Non-discretionary overtime
  • Non-discretionary fees
  • Non-discretionary commissions

However, you cannot include:

  • Discretionary bonuses
  • Discretionary commissions
  • Tips
  • Benefits in kind

Do I have to pay my employee national living or national minimum wage?

No. If the employee is currently receiving the national minimum wage/national living wage then you would still apply the 80% capped at £2,500 to the employee's usual wages. 

Is this gross or net salary?

The amount of 80% or £2,500 is gross salary. Taxes should be reported and paid to HMRC as usual.

The full amount claimed as salary must be declared on the employee's payslip and the net wage must be paid to the employee.

Can I top up my employee’s pay?

Yes. However, although this is a great gesture, care needs to be taken when making the decision. If this puts financial strain on the business, this may not be a sensible thing to do.

If the employee agrees to be furloughed at 80% of their salary, it is better for them to return to a business that is stronger coming out of this crisis than the short-term benefit of receiving full payment.

Care must also be taken as not to discriminate between employees by maintaining a 100% salary for some employees and excluding others.

What about the employer’s pension contributions and national insurance?

The employer can add employers NI and minimum pension contributions (3%) to the claim. 

Where the employer's NI is covered by the employment allowance, employers National Insurance cannot be claimed.

How do I calculate the claim value?

HMRC has published guidance on how the claim for each employee can be calculated, this can be found by following the below link.

The guidance has been published in full, alternatively, you can use the HMRC calculator.

 

It is our recommendation, due to the amount of knowledge you would need to acquire, and the complexity of calculations, that you use a PAYE agent to file your claims. This will reduce the chances of HMRC rejecting or clawing back the claim.

What if my employee wants to take a holiday whilst on Furlough?

According to HMRC, an employee can take a holiday whilst on the Furlough period. This includes bank holidays. The employee must be paid 100% of their salary entitlement for any holiday days taken.

We have interpreted the government guidance that holiday pay can be included within the furlough claim and the employer will be obligated to ensure that the 20% top is paid to the employee.

Can my employees undertake any work whilst on Furlough?

Employees can undertake training whilst on Furlough, they can also volunteer and subject to approval can undertake work with a new employer during the Furlough period.

Any training that is completed must be paid at 100% of the employee's usual wage, with the business claiming the grant for the remaining 80% capped at £2,500.

The employee cannot undertake any work for your business whilst being placed on Furlough.

Can I check in with staff placed on Furlough?

It is fine to check in with staff so that they are not isolated from the business, in fact, we suggest that this is preferable. As long as the conversation is personal and not business-related.

What about company directors?

Yes, under the Furlough scheme it is possible to furlough yourself as a company director or officeholder.

Company directors who have been placed on Furlough can only complete work that fulfills their statutory duties. This includes activities such as:

  • Filing of statutory accounts
  • Running of the company payroll
  • Filing quarterly VAT returns

If it is not possible to Furlough yourself as a company director and your work has dried up, we share some pragmatic in our article, steps you can take to develop your business.

What paperwork should I have in place to Furlough my employees?

A variation of the contract should be agreed upon in writing with the furloughed employee. This can be achieved by completing a Furlough Template letter and seeking the signed approval of the Furloughed employee. Please contact Bespoke HR if you would like access to this template.

What paperwork should I have in place to Furlough myself as a company director?

Board minutes should be maintained to document any decisions made to furlough directors. Please contact us if you would like access to our board minutes in relation to furlough.

Now that the Furlough Scheme is available, how do I process the claim?

Firstly, due to the calculations required and the limited time for which furlough is available, we suggest that you engage your PAYE agent to make this claim for you. If you do not have a PAYE agent, you can engage one easily at this time.

If you are looking to complete the claim you can either:

  • Open the coronavirus claim portal and press the claim button
  • Login to your HMRC PAYE account and click the link for Coronavirus Job Retention Scheme now available in your Government Gateway Account

What information do I need?

Information about your business
  • Company name
  • Company Registration Number
  • Unique Tax Reference for Corporation Tax
  • PAYE Scheme reference number
  • Nominated bank account details, including account holder address registered to the  account
  • Number of employees on the claim
Information about the furloughed employee
  • Full Name
  • National Insurance Number
  • Claim value

If you have more than 100 staff on Furlough, you can make the claim by using the HMRC bulk upload feature.

When will I be paid?

It is very early in the process; however, HMRC has indicated that the claim will be paid into the nominated bank account in 6 working days (8 calendar days).

HMRC reserve the right to refuse claims due to the following reasons:

  • If the claim is believed to be fraudulent;
  • If details contained within the claim cannot be verified;
  • If the number of employees exceeds the RTI submissions for the latest pay run prior to 19th March;
  • If claim/employee details are incorrect.

Do I need to keep records of the claim

Yes. HMRC has reserved the right to audit claims made. Records must be kept for 5 years to allow sufficient time for HMRC to raise an inquiry.

Where to go to for more help?

We suggest that you engage your PAYE agent to make this claim for you. If you do not have a PAYE agent, you can easily engage one.  Please contact us if you would like assistance.

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