The flaws in the furlough system

The most common issues we are finding 

1. “Employees must be on the payroll submission on or before 19^th March 2020” this is the rule set out by HMRC in their guidance. The rules set on the furlough application do not match those per HMRC guidance. The application form has been programmed that only employees on the 19^th March 2020 submission (therefore on the February payroll) can be included on the claim.  The implications are:

• Workers who had previously left, and therefore were not on the payroll in February 2020 that were brought back in March 2020 as per the guidance for the furlough grant are not being included.
• If you have furloughed all workers in March, but not all of them were paid in February (say you have recurring seasonal staff) then the application may think you are furloughing more staff than you have and reject the claim in error.
• Those whose payroll is filed on an annual basis (which covers many payrolls where there is no tax to pay each month) usually have one annual submission in March each year (technically HMRC view this as part of the 19^th April filing deadline not 19^th March). As these PAYE schemes had nothing to report in February they are being rejected by the portal. Our regulatory institute, the ICAEW, have taken up this case with HMRC. We have discussed it at length with HMRC and members of parliament.  But a solution to how to claim has not been forthcoming so far.

2. In some cases where there is more than one director, the HMRC application sometimes identifies one eligible director but not the other.

3. Organisations with no UTR number (for example some charities) are finding the application won’t let them continue without this reference. The ICAEW have recommended that you answer ‘No’ to the questions: Does the employer submit a company tax return? Is the employer registered for self-assessment? And Is the employer registered at Companies House?  We are yet to see for ourselves if this works

4. Any staff taken on under TUPE (where they move from one employer to another but retain all the same employment rights) in March 2020 may be rejected, even though the employee will be able to correctly argue they should be entitled to be furloughed

5. Employment allowance causes confusion. Where an employer can claim £4,000 against employers’ national insurance this causes a lot of complexity with the calculation of the employers NI reclaim on the grant.  If you pay no employers NI due to the allowance, then you don’t claim any on the grant. But what if you use all the allowance and still have a bit of employers NI to pay? The guidance isn’t very clear! For the time being it would suggest that the employers NI can be claimed provided it doesn’t exceed the total employers NI paid in the month – but as I say it’s not clear at this time.

6. Last minute update on holiday pay and bank holidays. On the 17^th March HMRC updated legislation to suggest that holiday pay and bank holidays should be paid at an average of the employees pay over the previous 52 weeks essentially meaning that staff on furlough are entitled to the 20% top up for Easter. As this is a change after the event it would appear to us that this will be reflected in adjustments after the furlough has ended and business return to work at whatever the new normal is during the economic recovery. 

One solution is to allow the staff member to take the holiday later, as this can be taken between now and the end of 2022 or top up the pay for those days in a later pay period.  Ultimately many businesses cannot afford to pay for the 20% top up now – that’s why they furloughed staff!

7. Last minute exclusions. As the applications process was released an update came out (which was subsequently updated on the 22 April) that discourages businesses in education, early years and children’s social care from using the Jobs Retention Scheme. 

This is on the basis that such businesses are paid mostly by government funding anyway.  The HMRC guide is here, but the point they fail to note is that if you can evidence that the majority of your funding is from sources other than the government and that this has dried up then you may still be able to claim for at least some of your staff.

Ultimately if childcare providers end up closing down because they didn’t get their support there will be some real difficulties getting the population back to work and the economy running again.