Category

Uncategorized

Employment Allowance and Furlough Pay

Employment Allowance for Furloughed Workers

You cannot claim Employment Allowance against furloughed workers, and this is for the whole of the tax year.  We have a suspicion that HMRC will apply this retrospectively for claims in the previous tax year as well, and their guidance clearly warns against fraudulent claims.

If your company is eligible for Employment Allowance you must either deduct the Allowance from the National Insurance Contributions claimed for furlough, or the NICs claimed from the Employment Allowance.  You cannot claim NICs for furloughed workers in the first part of the tax year, and then apply the Employment Allowance later.

We know this is tripping people up and it is not straightforward.  There is HMRC guidance to follow but the principle is that you cannot receive relief for the same NIC twice, and HMRC will apply the Employment Allowance to furloughed workers first.

If you have over- or under-claimed there is now the ability to submit corrections.  These are easier to correct with a subsequent claim, but you can also contact HMRC directly.

Example

Claimed £1500 of employers NICs for furloughed worker, then the amount of Employment Allowance is:

4 000 – 1 500 = £2 500

It is probably simpler to not claim the £1500 on the furloughed workers in the first place, as current guidance is to contact HMRC where you will be claiming less than the full £4000.  We recommend not claiming the first £4000 of furlough employer’s NIC in each tax year.

Reassurance from HMRC

Some reassurance is given in this quote from the .gov website “We will not be actively looking for innocent errors in our compliance approach.” HMRC 19.8.2020

This also follows on from earlier statements saying measures will not be retrospectively applied when they have changed.  Which comes back to the requirement to keep good records.

Furlough Claim Changes from August

Furlough Claim Changes from August

Furlough claims are changing from August as you can no longer claim for employer’s National Insurance Contributions or pension payments, so the amount that can be claimed is reducing.

The employer continues to pay the NICs and pension contributions, as well as the 80% furlough pay which is still subject to the £2500 cap per month, but the amount of support from the government is reduced.

One thing to bear in mind when calculating costs is that the reduction from 80% to 70% will be slighter greater than 10%, as it is 10% of the greater amount of the reference pay, not the furlough pay.  The 80% furlough payment still needs to go to the employee, but the employer will be making up the shortfall.

Example Furlough Claim

Some example calculations for August, September and October are as below.  A simple total gross payment is taken, and no employer’s NICs or pension payments have been added.

Total Furlough Payments Grant Calculation Total Grant
August £10 000 10 000 x 1 £10 000
September £10 000 (10 000 / 8) x 7 £8 750
October £10 000 (10 000 / 8) x 6 £7 500

The calculation is far simpler than in previous months, but then there is less available to claim.  The total reference payment used in the above would have been £12 500.

What this means in practical terms

Continue to use the furlough pay calculation as previously and put the 80% through the payroll for furlough pay.  If you are using flexible furlough the payroll calculation remains the same, but again when the claim is made the total will be reduced in September and October.  When you come to make the claim use calculations as above, in September divide the total furlough payment by eight and multiply by seven, and in October divide by eight and multiple by six.  Remember to keep records!

NI and Pension Calculations For Furloughed Workers

National Insurance for Furloughed workers in July

There are changes proposed with the way employer’s National Insurance is calculated for the period of July.  The proposal is more in line with the original guidance issued up to the 20th April.

The secondary NI threshold is taken and divided across the number of calendar days in the period, it is then multiplied by the number of furloughed days.  This value is deducted from the furlough payment, and the claimable employer’s NI is then 13.8% of the remainder.

Secondary threshold for NI = £169 per week or £732 per month for July 2020

Employers should still take the employment allowance into account where necessary.

For example:  An employee is on furlough of £300 per week and is paid 2-weekly.  They are furloughed for the whole of a two-week period in July, are NI category A, but also receiving a top up of £100 per week.

£300 x 2 = £600 total furlough pay

£600 – £338 = £262

Maximum employers NI to claim = 13.8% of £262 = £36.16

The National Insurance on the £100 is disregarded for the claim, unlike at the moment where the claimable amount can actually increase.

For workers on flexible furlough the equation is the same but using hours instead of days.  This is a little less clear in the guidance but appears to be:

NI threshold for period / usual number of hours in that period = NI threshold per hour

NI threshold per hour x number of hours furloughed = threshold available for furlough pay

Furlough pay – available threshold = furlough pay subject to NI

Furlough pay subject to NI x 0.138 = Employers NI that can be claimed where applicable.

From 1st August the employers NI can no longer be claimed anyway, so this only needs to be managed for one month.

 

Employer’s Pensions for Furloughed workers in July

For the employer’s pension that can be claimed for furloughed workers in July there does not appear to be any changes from June other than they have a separate section in the guidance.  This proposal is similar to the NI in as that it is similar to the initial proposals before 20th April, but then in the more recent changes was already moved to this anyway.

Take the relevant lower threshold for qualifying earnings and divide it by either days for a part furlough period, or hours if flexible furlough.  You then multiply this by the number of days or hours furloughed to get the threshold to deduct from the furlough pay.

The lower qualifying earnings threshold is £120 per week, or £520 per month.

The maximum employers auto-enrolment pension to claim is either the actual amount or 3% of the furloughed workers wage, whichever is lower.

For example: Monthly paid employee furloughed for whole period paid £2000 furlough pay and £1000 top up.  The employers pension contribution is £90

2000 – 520 = £1480

3% of 1480 = £44.4

£44.4 < £90

Therefore, for this employee £44.4 can be claimed in July for the employer’s pension contribution.

From 1st August the employer’s pension contribution can no longer be claimed.

Flexible Furlough

Flexible Furlough Pay

As part of the Coronavirus Job Retention Scheme from 1st July 2020 workers can return to work on reduced hours whilst remaining furloughed.  Where the flexible options is used and an employee is returning to work on reduced hours you must know the hours usually worked as well as the hours worked this period.  This is not so straightforward, but HMRC have been quite specific with how they want this calculated for furloughed workers.

Usual hours worked / the period over which those hours are worked = average per day

Average per day x number of hours in the pay period = the total usual hours worked

If the total usual hours worked is not a whole number then round up.

Eg Monthly paid worker on 37 hours per week in July

37 / 7 = 5.29

5.29 x 31 = 163.99

164 hours usually worked in July

(this is not the equation we would typically use to work out average monthly hours!)

It is more complex where an employee works variable hours but still possible if you have the information to hand.  The first part of the equation could be total hours / 300 days for instance.

You can deduct the number of hours worked in the pay period from the usual hours to give the furlough hours that can be claimed.

The amount that can be claimed is the usual process of calculating the 80% grant amount and applying caps as necessary.

Grant amount x (furlough hours / normal hours) = the furlough grant to claim

It looks like hours should always be used and not days, there is no guidance for how to calculate flexible furlough payments using day rates.  Again records should be kept.

HMRC have a few examples with the flexible calculation available here.

Furlough Pay Changes 1st July

Furlough Pay Changes 1st July 2020 (CJRS)

There have been several changes announced for the Coronavirus Job Retention Scheme coming in from 1st July.  The July is a threshold, and it looks like claims will not be able to cross June and July, or July and August.  There is also going to be a new template released for employees with over 100 employees furloughed.

Claims for July will not be able to be submitted until into July, and all claims for June must be completed by 31st July.  Probably the biggest change for July is that furlough is to become flexible, so employees can return to work on a part time basis and remain on furlough for the rest of their usual hours.

To qualify for furlough pay from July there is the added criteria that the employee should have been furloughed for at least three weeks between the 1st March and 30th June.  In July the employer can still claim employers pension and National Insurance, but the calculations have moved back to the original proposals prior to 20th April.

Announcements have also been made that from 1st August employer’s National Insurance and Pension can no longer be reclaimed, and the grant will be reduced from 80% from September.  The term minimum furlough pay has also been used, probably in anticipation of when employees are to be furloughed beyond September the employer will need to contribute.

The requirement to keep good records has been noted again, but also HMRC have added some reassurance:

“Choose the calculation you think best fits the way your employee is paid. For example, if you pay your employee a fixed regular salary, use the calculation for fixed pay amounts. HMRC will not decline or seek repayment of any grant based solely on the particular choice of pay calculation, as long as a reasonable choice of approach is made.”

The Calculations from 1st July

(as anticipated from the information provided on 12th June!)
This is subject to change, and last time everything changed in the week that the claim portal went live, however this time there is far more detail and examples have been provided.

For fixed salaried employees that are not using the flexible return to work you can use the salary and multiply by 80% to get the furlough grant amount.  If greater than the monthly or weekly caps then the grant amount is the cap.

Grant amount / the number of days in the month = Daily furlough pay

Daily furlough pay x number of days furloughed = furlough grant

Where the pay varies you can use the corresponding period last year or an average from last tax year.  Using the previous period can be complex where the periods do not align exactly, and we would suggest caution if you chose to do this.   There are examples available from the Government’s website as noted above

Calculating Employers Pension Contributions for Furlough Pay

Calculating Employers Pension Contributions for Furloughed Workers

Update 6.5.2020

Where an employee is in an auto-enrolment pension scheme there is a maximum amount that can be claimed for employers pension contributions, which is the contribution made or 3% of qualifying earnings, whichever is lower.

Where an employee is furloughed for the whole pay period the calculation is straightforward and as originally indicated:

3% of (Furlough pay – lower earnings limit) = the employer pension based on qualifying earnings

If you have a negative value it is converted to zero and nothing can be claimed.

The lower earnings limit for this tax year is £520 per month or £120 per week.  Where there is only furlough pay for the whole pay period, there is no top up, and the pension scheme is already based upon qualifying earnings you can simply lift the values from our reports.

If the pension scheme is on a different basis, such as total earnings, or there is some top up pay, then the calculation needs to be used.

If the furlough pay is only for part of the period then the lower earnings limit needs to pro rated as previously discussed.  See the Government CJRS website for further details:

https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme#work-out-how-much-you-can-claim-for-employers-pension-contributions

Update 24.4.2020

There has been another change!  The lower earnings limit can now be apportioned if the furlough pay is not for the full period.  If it is furlough pay for the whole period then the calculation remains the same.

https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme

Update 20.4.2020

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/880099/Coronavirus_Job_Retention_Scheme_step_by_step_guide_for_employers.pdf

(Please read the latest guidance before making a claim, HMRC are using a pro-rata for the NI calculation rather than their original guidance, but have used the below for the pension)

 

If your pension scheme already uses qualifying earnings, and your employees are only receiving furlough wages then the pension contributions will be simple to lift from the payroll reports.  Where things get more complex are when workers have a combination of furlough and non-furlough pay, or your pension is calculated on an alternative basis.

“Employer pension contributions that are paid on the subsidised furlough pay, up to the level of the minimum automatic enrolment employer contribution. The maximum level of grant for employer pension contributions on subsidised furlough pay is set in line with the minimum automatic enrolment employer contribution of 3% on qualifying earnings. Grants for pension contributions can be claimed up to this cap provided the employer will pay the whole amount claimed to a pension scheme for the employee as an employer contribution.”
https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme 17.4.2020

Although salary sacrifice pension schemes will again need to be dealt with separately, it would seem likely that a proportion of the pension contribution can be claimed against. CJRS also states it is for auto-enrolment schemes, so where an employer pays into a private pension that may well not be covered.

Because there is an upper limit to the amount of furlough pay only the lower band needs to be considered, and because it is only the employers contribution we do not need to take into account the tax treatment of the scheme.  If you want to know more about qualifying earnings used in auto-enrolment pension contributions see here

The lower level is £520 per month, or £120 per week, for this tax year and was £512 per month, or £118 per week for the 19/20 tax year.  The pension is calculated on the portion above this lower level.

For example:

Month 1 payroll (April), monthly pay frequency:

Furlough pay = £2500

2500 – 520 = 1980

1980 x 0.03 = £59.40

This would be the maximum that could be claimed for that employee according to the current guidance.  It should be noted that the amount claimed cannot exceed the amount contributed by the employer.

If an employee has furlough pay below the lower limit then no contributions could be claimed for, and negative values would be zero.

For example:

Month 12 (March), 2-weekly payroll

Furlough pay = £200

200 – 236 = 0

236 is used as this is twice the weekly lower level for the 19/20 tax year.  There is no employers pension contribution that can be claimed.

Care should be taking when looking at you pension contributions as some pension companies use very misleading terminology.  Beware banded and un-banded descriptions and if there is any doubt contact your pension company.  The government will be using the definitions used by The Pensions Regulator.

We will be working on a report with a calculation for employers National Insurance and a pension value for qualifying earnings for a pay component with Furlough in the description, this may well not be available by Monday and will probably only function in the current pay period.  Where employers have chosen more complex pay arrangements for their employees we are anticipating providing the raw data for them to feed into the spreadsheet or whatever was designed.  The payroll .csv should already work for this perfectly well.

Useful links:

https://www.thepensionsregulator.gov.uk/en/employers/new-employers/im-an-employer-who-has-to-provide-a-pension/declare-your-compliance/ongoing-duties-for-employers-/earnings-thresholds
https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

Employers National Insurance for Furloughed Workers

Calculating Employers National Insurance for Furloughed Workers

Update 6.5.2020

Now the dust has settled there is a little more clarity.  If an employee is furloughed for the entire period claimed, then the employers NIC that can be claimed can be calculated as originally indicated:

13.8% of (Furlough Pay – Secondary Threshold) = Employers NI

If an employee is only paid furlough pay then the values can be taken from our reports without need for further calculation.  If the pay has been topped up you will need to apply the calculation.  The secondary threshold for this tax year is £169 per week or £732 per month.

BUT if an employee was only furloughed for part of the period then you can use the pro rata calculations as previously described by HMRC

For further details see the Government CJRS website – https://www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme#work-out-how-much-you-can-claim-for-employer-national-insurance-contributions-nics

Don’t forget to factor in Employment Allowance if your employers NI does not normally go above this and you are eligible, in this case you would not be claiming the employers NI as you would not be paying any.

Update 20.4.2020

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/880099/
Coronavirus_Job_Retention_Scheme_step_by_step_guide_for_employers.pdf

(Please read the latest guidance before making a claim, HMRC are using a pro-rata for the calculation rather than their original guidance)

From the latest guidance (200416 Calculating the CJRS – step by step v1.1):

“Simplified calculation guidance for employers whose employees all have the same weekly pay period with only a single payment date and who choose a claim period equivalent to a pay period that is entirely within the period 1 March and 31 May 2020

Step 0 – Identify qualifying furlough days
Identify all qualifying furlough days for all employees based on:
(a) who has already been furloughed, and
(b) for which employees there are firm plans for furloughing.

Step 1 – Identify furloughed employees who have been paid in the period
Identify all employees who have been or will be paid who have at least one qualifying furlough day in the pay period.

Step 2 – Calculate gross pay grant per employee
For each employee identified at Step 1, the amount of grant entitlement is the lowest of (1) and (2):
(1) [£576] x number of qualifying furlough days in week / 7
(2) 80% x weekly reference pay x number of qualifying furlough days in week / 7

Step 3A – Calculate Employer’s NICs grant per employee
For each employee identified at step 1, calculate the amount of employer NICs that would have been due on the outcome of step 2.
If there is no employer’s NIC due on the employee the amount is zero (i.e. apprentices under 25, category H, employees under 21, category M, and employees under 21 who can defer NI because they’re already paying it in another job, category Z).

Where NICs are due, for each pay period partly or wholly within the claim period, you will need to perform the following calculations:
iv) Calculate the daily employer NICs due:
employer NICs due on the employee in the pay period / number of days in the pay period
v) Calculate amount of employer NICs due in the claim period:
daily employer NICs in the pay period x number of days within the pay period which are also in the claim period
vi) Employer NICs due on the pay gross pay grant, within the claim period:
Employer NICs due in the claim period part of the pay period x gross pay grant for the claim period part of the pay period / total gross pay in the claim period part of the pay period

It is necessary to apply step iii) where the employer has chosen to top up the furlough pay beyond pay required to be paid to the employee under the CJRS.
Where NICs are due the secondary threshold is £719 per month for payments up to 5 April 2020 and £732 per month for payments from 6 April 2020.

Step 3B: Calculating the grant for Employer NICs per employee
Sum the amounts calculated for each pay period in step 3A.

Step 3C – Restrict overall Employer’s NIC grant to the amount due for the payment
Sum all of the amounts calculated at Step 3B for a particular payment. If the total is greater than the total employer’s NICs for the pay period (after employment allowance), less any amounts previously claimed in Employer’s NIC grant for the pay period then restrict the amount of grant to the amount of employer’s NICs relating to the payment.”

The key part is that a pro rata calculation is being used rather than the thresholds as below.  So effectively for the furlough period:

Total employers NI due x Furlough pay / total gross pay.

This is likely to be a little more generous that the expectation of deducting the threshold as per the original guidance.

 

Calculating NI for Furloughed Workers (original published text)

With many companies using Furlough Pay for their employees and planning to claim via the Coronavirus Job Retention Scheme, we thought it would be useful to provide some notes on calculating employer’s National Insurance.  If an employee only receives Furlough pay then the payroll reports will provide the value to use, but if there is a combination of pay then a manual calculation will be required.

There are two methods, they will give slightly different answers but both are accepted by HMRC.

  1. Table Method
    This is a little old school now but if you want to calculate this way then the tables are still available. You can find this year’s here.
    If you do not know how to use the table method then now is not a good time to learn and you are probable better to go with the calculator method
  2. Calculator Method
    This method will make more sense to most people, and means calculating the amount due on the portion of the pay above a threshold.

NI category

This is important.  If an employee is category H, M or Z then there will be no employer National Insurance on Furlough pay.  Foreign Nationals that do not pay National Insurance are probably exempt from the scheme anyway.

Calculator Method

Employers National Insurance Contributions (NICs) are at 13.8% above the secondary threshold.  The secondary threshold for the 20/21 tax year is: £169 per week or £732 per month.  For the 19/20 tax year the thresholds were £166 per week or £719 per month.

It is also possible to check calculations for this tax year on the HMRC website, and this would be wise before making any claim.

If an employee has their furlough pay calculated as £2500 per month, they are NI category A, and they are on a monthly pay frequency, then the calculation for April is as follows:

2500 – 732 = 1768

0.138 x 1768 = £243.98

If that employee has the furlough pay calculated as £500 per month, then the calculation for March is as follows:

500 – 719 = 0  (you cannot have a negative value)

No Employer’s NICs to pay

If you were on a fortnightly or 4 weekly pay frequency you would use 2 x £169 (£166) or 4 x £169 (£166) for the threshold.

 

If a company is making up to full pay it is likely they will be liable for the NICs on the top-up portion, which will be 13.8% of the whole top-up amount.  This is a little unclear but is our understanding of the process.  This is no longer valid, see example above.

National Insurance is not straightforward, there are bands and different rates.  By capping the amount the Government has actually simplified this a little.  Where a company might need to manually calculate the NICs is where the employee is paid an amount greater than the 80% furlough or the employee is only furloughed for part of the pay period.

If an employee is only receiving furlough pay the total will be easy to pull from payroll reports; the Gross to Net for instance.  Where the total pay is made up of furlough and non-furlough components a calculation will need to be made outside of payroll.  Within payroll it is the total pay subject to NI that is used for calculations, there is no concept of different priorities of pay component.

When furlough pay was announced by the government we expected the gross amounts for the employees to be entered, and then the portal would calculate the overall total, but this now does not appear to be the case.  The burden has been placed back to employers to calculate the amounts, and record and store the basis of these calculations.

We will be working on a report with a calculation for employers National Insurance for a pay component with Furlough in the description, this may well not be available by Monday and will probably only function in the current pay period.  Where there is a more complex pay arrangement the payroll csv should contain all the raw data required.

For those of you that have asked about whether there is tax and employee NICs covered you should bear in mind these are deductions from the employee gross pay, so they will be covered by the furlough grant.

The pension if applicable will be covered separately, but there is a facility within the grant process to claim back employer’s pension contributions.  Employee contributions are again deducted from employee gross pay, so would be covered by the grant.  Salary Sacrifice is different, if you have a salary sacrifice pension you will need additional guidance from your pension adviser.

 

Useful links:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/876953/2020_to_2021_National_Insurance_contributions_Tables_A__H__J__M_and_Z.pdf
https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2019-to-2020
https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2020-to-2021
https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme
http://nicecalculator.hmrc.gov.uk/Class1NICs1.aspx
https://www.gov.uk/national-insurance-rates-letters/category-letters
https://www.gov.uk/national-insurance-rates-letters

Tax & National Insurances Rates 2020/21

Tax

In England and Wales the tax rates remain the same as in the previous year, with Scotland making some changes coming into effect on May 11th.  The personal tax free allowance remains at £12 500 (1250L tax code)

NICs

The National Insurance bands have changed however, which will result in less deductions and higher net pay for many employees. The primary and secondary thresholds have moved apart however, so employees and employers will start to make contributions at a different level.

Student Loan and Statutory Payments

The details and links to further information can be found here, together with further information on Student Loans, Statutory Payments etc.

Coronavirus Update 16.3.2020

Last week the Government raised the UK risk status to high and moved from the containment phase to delay.  The peak of the outbreak has been predicted to be next week.  At the moment we are still operating as normal, still have spare capacity, and are in as good a position as we can be.  Given the speed of change however we urge as many companies as possible to send their payroll information in now, so we can have a maximum number of payrolls completed by the end of this week.

Over the following two weeks we may be operating as usual.  We are anticipating the possibility of reduced hours however, hence trying to complete as much work prior to this period of high risk as possible.  The end of the tax year does add complexity, and we will let you know if this is going to be affected by the coronavirus outbreak at the end of March.

SSP is payable from day one where employees self-isolate because of Corvid-19 symptoms, and this is also going to be claimable from the Government.  There are no details yet, but we suggest everyone records the SSP taken as well as reporting to us, as there are no changes within payroll software or RTI submissions yet.

We will keep you updated as the position changes.

Second Site now Fully Operational

Business continuity is critical, never more so than in payroll

Disasters happen, and when they do they’re unplanned, unexpected and unpredictable.  For any size business it’s important to have a fail over process for all your business activities and none more important to your staff than making sure the payroll goes on time.

A fire, cyber attack or simply a downed internet connection at the wrong time could prove disastrous for any business so we’ve built in a second layer of disaster recovery establishing a second office at Kiln Farm, Milton Keynes.

This office offers full back-up and redundancy of service so a disaster at either site can be immediately mitigated and business can continue as usual.

There are few payroll providers that offer this level of service should the worst happen but our commitment to providing the highest levels of service dictated that we needed to invest.  We ran our first disaster recovery exercise in September when the entire team operated out of a single office, proving that providing our clients with a “business as usual service” in the event of a disaster was realistic and practical.

One thing you can help us with

While the test went extremely well and I’m sure none of you noticed we logged something you could help us with – eMail subjects lines.  We struggled to find some eMails as there was no payroll reference in the subject line.  Please can you all include your payroll reference into the subject line of your eMail and ideally your company name as well.  This will make sure that, in the event of a disaster, there are no barriers to Payroll Options delivering the service you expect.