Due to the complexity in the calculations required for variable paid employees, some hotel operators may have missed the required steps under HMRC guidance or Treasury Direction to calculate reference pay. The result of this means they may have underclaimed from HMRC and underpaid employees grant money.
This has significant implications, with the whole grant in relation to that employee for the period of underpayment being repayable to HMRC unless the employer makes good the underpayment to the employee in a reasonable time period.
In many cases, the employer will now be out of time to collect the extra grant from HMRC resulting in mounting costs. In this article, we’ll discuss how to check your claims are correct.
The Coronavirus Job Retention Scheme (CJRS) brings in three new concepts, all of which are utilised in determining the amount that can be claimed. These concepts are:
furloughed workers/employees;
regular wage or salary/reference pay (based on set HMRC calculations); and
for flexi furloughed employees: Usual hours (based on set HMRC calculations) less worked hours are furloughed hours.
Employers who claimed based on the initial guidance back in March 2020 may have worked out their own version of how calculations should be done. This may have been done for variable paid employees (engaged before 19 March 2020) where the 2019/20 average is required, as the initial guidance was less than clear. Those employers may not have revised their calculations each month and spotted changes or the expansion of the HMRC guidance, making it clear over the following months how HMRC thought the calculations should be done.
Since the introduction of the penalty legislation, many employers have started to review claims. If you’ve made mistakes or you haven't reviewed your previous claims, we recommend acting as soon as possible. Where mistakes have been made, consider what action needs to be taken to rectify the mistakes.
In order to tackle claims review, the differing versions of the CJRS need to be explored. There are three versions of the scheme to consider:
V1: CJRS original fully furloughed scheme, 1 March 2020 to 30 June 2020
V2: CJRS flexible scheme, 1 July to 31 October 2020
V3: CJRSE flexible scheme, 1 November 2020 – 30 April 2021.
Let’s look at the differences between these versions.
CJRS V1: 1 March to 30 June 2020, full furlough required for a minimum 21 consecutive days
The maximum grant reclaim value is 80 percent of a furloughed employee’s wages (calculated using the new concept of reference salary, which is defined as to which components are included) up to a cap of £2,500 per person per month plus employer National Insurance (ER NICS) and employer’s auto-enrolment minimum pension contributions on that reference salary at 3 percent.
CJRS V2: 1 July to 31 October 2020, flexi-furlough as well as full furlough allowed and only provided an employee was eligible/claimed for under v1, subject to maximum number of employees in a claim. This version of the scheme changed from July to October as follows:
1 July to 31 July: as above but only for furloughed hours.
1 August to 31 August: the maximum grant for furloughed hours is 80 percent of a furloughed employee’s wages (the reference salary, which is defined as to components included) up to a cap of £2,500 per person per month.
1 September 2020 to 30 September 2020: the taxpayer contributed 70 percent and the employer 10 percent of furloughed employees’ wages during furlough periods; and
1 to 31 October 2020: the taxpayer contribution was 60 percent and the employer contribution was 20 percent.
The employer was required in August, September and October to continue to contribute employer’s National Insurance and employer’s pension contributions.
CJRSE V3: 1 November to 30 April 2021, flexi-furlough allowed, and employees can be claimed for if not previously claimed under V1 and V2
The maximum grant reclaim value is 80 percent of a furloughed employee’s wages (the reference salary, which is defined as to components included) up to a cap of £2,500 per person per month.
What should you be doing?
If you receive a letter from HMRC requesting a reply by a set date, take it seriously, review your claims and reply to HMRC. Don’t forget that if you are large enough and covered by the Senior Accountancy Officer regime, this does apply to CJRS grant money received.
Also be aware that HMRC may not be the only interested party, your organisation’s claims’ auditors are likely to want to make sure the claims are materially correct as well. Reviewing them early with professional advisers will smooth that audit process for you and give comfort to management and its auditors as early as possible.
Errors are often made in three broad categories:
an administration error when inputting details of a claim
calculating the amount of claim due particularly considering the complex rules
accidentally making a claim in relation to an employee who is not eligible.
What are some common mistakes?
Use of the incorrect number of days (working days rather than calendar days).
Staff working for the employer whilst on furlough.
Not factoring top-ups or additional payments, into the NIC element of the calculations, claiming when no NIC is due or not capping based on the furlough grant element when making a claim for employers NIC?
Claims made for ineligible employees (employee not on the last RTI/payroll before 19 March 2020 or, for claims from 1 July to 30 November 2020) not previously furloughed before 10 June).
Staff called back from furlough before 21 days yet included in claim(s) under V1 and V2.
Grant payments not been paid over – to employees, HMRC and the pension scheme.
Underclaims where the reference pay has incorrectly included or excluded elements.
A lack of understanding of employment contracts and the different components through which an employee is paid meaning that grant pay under CJRS is incorrect.
Furlough agreements do not clearly identify how pay / benefits will continue during the furlough period. For example, pension, salary sacrifice or net pay benefits under flex schemes.
A lack of understanding about how to deal with holidays when on furlough.
Salary sacrifice pension arrangements not correctly applied in relation to pay whilst on furlough and incorrect amounts paid over to the pension scheme.
Approved training days not being recorded nor working days after 1 July therefore leading to potential employee underpayments as they are entitled to NMW or contractual pay.
Inadequate documentation of start and end dates of furlough and flexi furloughing being applied.
Further assistance
RSM have undertaken reviews of claims or helped submit claims and have developed a comprehensive understanding we use to assist with the checking of computations and claims submissions. For more information, details of our experts can be found below.
Carolyn Brown, Employment Legal Partner, RSM Carolyn.Brown@rsmuk.com
Susan Ball, Employer Tax Solutions Partner, RSM Susan.Ball@rsmuk.com
Steve Sweetlove, HR Services Partner, RSM Steve.Sweetlove@rsmuk.com