The Coronavirus Job Retention Scheme – commonly known as furlough – has acted as a lifeline to millions of businesses and employees.

Following many extensions, the scheme has officially closed on 30th September. No claims can be maid for employees in October. Claims for September must be submitted by 14 October 2021 and any amendments must be made by 28 October 2021.

How will the employer contributions change from July?

Up to 30 June 2021, the Government will pay 80% of employee’s wages, capped at £2,500 per month.

From 1 July to 31 July 2021, employers are required to contribute 10% of the 80%. The maximum cost to an employer is £312.50 per employee plus the full cost of Employer’s National Insurance.  Based on the furlough salary cap of £2,500 per employee this would cost up to £235 per month in Employers National Insurance. Therefore, it could cost you as an employer up to £547.50 per month for each employee still furloughed.

During July the Government will contribute the remaining 70% of the 80% furlough salary, effectively making the maximum claim per employee would be £2,187.50 per month.

From 1 August to 30 September 2021 (when the scheme ends), employer contributions rise to 20% of the 80%.  Therefore, the cost to employers for the gross salary could be as much as £625 per staff member.  Again, there is the additional Employers National Insurance to add to this, a cost of up to £235, bringing the total maximum cost to employer per staff member to £860.

During these two months the Government contribution will be 60% of the 80% (capped at £1,875 per month).

See the table below for a full breakdown of maximum contributions.

Who can you furlough?


From 1st May 2021, you can include any employees that were on a payroll monthly return (the RTI return) filed after 30th October 2020, but before 2nd March 2021. In practical terms this means for most employers that staff included on the October to January payroll are eligible for furlough. The aim of this change is that newer members of staff taken on over the winter are now eligible for being furloughed.

If an employee is on fixed pay (in other words they have a set annual gross salary and are not paid by the hour or via commissions), it’s based on the last pay day before the reference date. If an employee is on variable pay, it’s based on the average from the start date to the day before they were put on furlough.

Claims for variable paid employees is the higher of their average pay in the 2019/20 tax year or the corresponding pay period in 2019 (not 2020) and if not employed at that point in 2019 it must be based on their average pay since taking on the employment up to their first day of their first furlough period.

If you employees were eligible for the two previous furlough schemes, then you do not uplift the grant for pay rises or National Minimum Wage.

In simple terms it means if an employee was employed by the business before 28 February 2020, then any furlough pay from May 2021 has to be paid based on the calculation that would have applied back in March 2020. Effectively furlough is now limited to pre-pandemic wages where a staff member predates the pandemic.

In one final adjustment to the furlough calculation there is now an exclusion for days and pay when an employee has been on any statutory pay or reduced pay leave after statutory pay period. The calculation of average pay is therefore clarified as being based on usual hours, excluding these periods of reduced pay.


Directors can be furloughed but must not do anything other than essential maintenance or admin for the business. A furloughed director couldn’t, for example, be involved in maintaining sales contacts, or managing staff etc.

There is certainly higher scrutiny from HMRC on directors. For example, there was a case recently whereby a director had been claiming furlough but had still been updating his social media for the business. This was deemed to be work on the business and therefore invalidated his claim to the grant and it had to be repaid.

What evidence do you need to provide?

As the Covid-19 lockdown restrictions relax further, there will be tougher rules for employers to provide evidence to use the furlough scheme. HMRC will be keen to claw back as much money as possible, so we are advising all employers to keep a good record of why you are claiming furlough and the calculations used for the claim to prevent any issues in the future.

For example, you must provide evidence that “employment activities have been adversely impacted by coronavirus”. This means keeping evidence how turnover has been affected, how long offices or sites of work were closed etc.

There will be greater scrutiny of employers to make sure furlough claims are made due to Covid-19 restrictions not for other “abuses” of the rules, such as using furlough as an alternative to sick pay.

Have you received a concern letter?

Over 10,000 employers, both large and small, have been issued a 20-page concern letter.  These letters are effectively HMRC saying that they think something is wrong with your furlough claim or that they have received information that furlough has been incorrectly applied.

If you receive one of these letters, you only have 2 weeks to reply. There’s a lot of information you need to collect in a short period of time so it’s important to deal with the letter straight away.

If you are going to struggle to reply in full on time, write to HMRC requesting more time to formulate a full reply. Usually, HMRC are willing to grant more time. The worst thing you can do is give them the silent treatment and then be late.

If you are going to reply via email, ensure you read the information sheet “Corresponding with HMRC electronically”.

For all our clients we recommend that you let us know if you receive one of these letters as soon as possible. Even if we have not been involved in your furlough claims as we will be able to help you respond.

Staying squeaky clean

Many of these “letters of concern” are the result HMRC having been “tipped off”. Whether the tipping off was based on fact or someone, often disgruntled employees, causing a nuisance HMRC can’t tell until they open a check into the company.

There have been over 26,000 whistleblowing reports to HMRC. The Government have a budget of £100m for the Taxpayer Protection Force, with HMRC predicting the pay back from errors or fraudulent claims to be £5.8bn!

For most employers there’s a 6-year window in which HMRC can investigate how you have administered the furlough scheme. It is important that you ensure you are keeping clear records that will be understandable well after the last claim is made.

Common errors – Will you receive a penalty?

Over-payment of Employers National Insurance – There have been some furlough claims where HMRC have paid Employers National Insurance when none was payable by the employer. This is a common error where the Employers Allowance has been claimed but not considered in the furlough claim. HMRC can claw back this over payment with interest and penalties.

Holiday pay for staff – You should be paying staff holiday pay at 100% of normal salary. Whilst this is not directly a furlough penalty issue, it is something needs to be addressed in respect of employment contracts. The worker’s pay should reflect what they would have earned if they had been at work and working.

If you have variable paid employees, it is slightly more complicated as you need to calculate the average hourly or weekly rate. You’d need to take the average rate over the last 52 weeks, however if in one particular week, there was no pay then you would need to count back another week up to a maximum of 104 weeks to get the appropriate average. If you have less than 52 weeks of pay, you should use the average pay rate for the full weeks that have been worked.

Declaring furlough grants on your accounts – Furlough grants should be declared separately on your accounts, shown as other income not netting off with the salary costs. There is a legal requirement for businesses to disclose the furlough grant on the year end tax returns or there could be additional penalties from HMRC.

Don’t suffer in silence

If you have any concerns that something is wrong or that an error was made in any of your furlough claims there are ways of making good these issues and preventing a “letter of Concern” arising.  Generally speaking, HMRC are more much more lenient where the tax-payer declares an error and makes corrections voluntarily rather than when HMRC find it under enquiry.

If you’re worried about anything, give us a call on 01474 853 856 or email

Our guidance on holiday pay

Guidance from ACAS stated that holiday will continue to accrue while a member of staff is furloughed. As frustrating as this is as an employer it lays rule that we must abide by and plan around this.

One thing that ACAS have detailed is that holiday carry over will be extended for two years, giving a little more power to employers to work with staff about holiday planning so that staff take holiday in a way that does not leave the business understaffed in the short term.

Our guidance on holiday pay

The updated guidance from ACAS does not rule out requesting staff take holiday while furloughed.

You can therefore give notice to an employee to take time as holiday. You could put in place a policy that every 16th day (based on a five-day working week) is to be taken as a day of holiday. Holiday will be paid as part of the furlough and will be covered by the furlough grant for the employer. Not the neatest solution but hopefully something workable to solve the issues involved. As you can read in our analysis of the ACAS guidance you have to give adequate notice to a member of staff to request that they take holiday.

The possible risks are:

  • On average an employee accrues 1.3 days holiday every 3 weeks. So, if the period of furlough lasts for a protracted time the staff member will still have accrued some holiday time to take off when back at work.
  • Once the crisis is over it is possible that under legal process it could be judged that holiday taken on furlough would have to be paid at 100% salary not the reduced 80% salary, in which case the employer may have to top up for those specific days.

Other items to consider:

You may need to update employment contracts or policies so that it gives clarity to staff on issues surrounding holiday pay including the following:

  • A statement that under employment law the employer can give notice to an employee to utilise annual leave at the employers discretion
  • The employer has the right to reject applications for annual leave provided there are alternative dates of leave the employer can approve at a later date
  • That a temporary extension to holiday allowances will allow holiday unused at the year end to be carried over for two years
  • That holiday for non-furloughed workers will be prioritised for annual leave  in the interests of employee welfare

We are not employment lawyers and make the above suggestion to allow our clients to put a policy in place and move forward with decision making. It is possible that as details emerge this policy may have to be altered and updated.  We will keep you posted but hope that at least making this suggestion allows you to resolve these issues for now.

How to apply

On Monday 20th April, the HMRC gateway opened for applications to get the Coronavirus Job Retention Scheme (CJRS) or the furlough grants.

Click the button below for our guidance on how to apply.

How to furlough your employees

Final thoughts

Whilst the scheme continues to September 2021, future staffing levels most likely need reviewing now to make sure that these schemes aren’t just delaying an inevitable crunch point for your businesses cashflow and longer-term profitability.

Our Principal Advisers and Client Managers have been working diligently to help businesses get to grips with the numbers and draw up workable projections to help make decisions.

If you need to have someone to discuss thoughts and ideas as you move forwards then please get in touch with your Client Manager or Principal Adviser, call 01474 853 856 or email

You may also benefit form talking to Donna, our HR Specialist, who can help with contractual and legal issues surrounding bringing staff back on reduced hours or the scarier options of layoffs and redundancies. Email her at or call 01474 853 856.