The next phase of the Job Retention Scheme is now live. It brings in more flexibility for businesses – and more risk of error.
The second phase of the Coronavirus Job Retention Scheme (CJRS2) brings in several changes to the scheme as the government begins its slow phase out over the next three months. From tomorrow (1 July), employers can bring furloughed employees back on a part-time basis. It also means that from today, the scheme is closed to new entrants.
These changes bring in more complexity to the scheme. In particular, flexible furlough has created confusion as to what constitutes ‘actual working hours’. According to HMRC guidance, usual hours must be calculated as follows:
- Start with the hours your employee was contracted for at the end of the last pay period ending on or before 19 March 2020.
- Divide by the number of calendar days in the repeating working pattern, including non-working days.
- Multiply by the number of calendar days in the pay period (or partial pay period) you are claiming for.
- Round up to the next whole number if the outcome isn’t a whole number.
This has confused some confusion as it will give a different answer than if you counted up the hours using a calculator.
HMRC has recognised the increased complexity of the scheme and the higher risks of incorrect claims as a result. Here’s how accountants are preparing for the change.
The calculations will trip people up
Sherad Dewedi, managing partner, Shenward Chartered Accountants
When they announced flexible furlough towards the back-end of May, we saw some clients putting staff on furlough just so they could comply with the flexible rules from 1 July. They might not have planned to have anyone on furlough in June, but because of the requirement that you needed to have been on furlough for a minimum of three weeks before you could be flexibly furloughed, they felt they had no choice.
We’re seeing a lot of communication from HMRC on the topic of incorrect furlough schemes – intentional or unintentional – and the penalties that it would incur. On the claim form online, there is now a new question: ‘Have you over-claimed in the previous month?’ It’s asking you to certify on a month-by-month basis that you believe you’ve claimed the correct amount every month.
The complexity comes into play in the payroll calculation. We do run our own bureau and they’re pulling their hair out, because they’re going to have to effectively run a payroll for the days worked, run another calculation for the furlough, bearing in mind that it has to be capped at £2,500 a month and also has to be based on a different rate. It’s going to make it interesting for the next few months.
There are going to be errors, we’re going to have to accept that.
Next steps: Communication is absolutely vital. We’re telling our clients that they need to tally the hours that are worked if the staff are paid on variable pay and they need to keep close records themselves of who’s been furloughed and when so that it translates correctly into the payslips.
Verdict: Errors will inevitably arise through payroll calculations.
How HMRC could help: allow us to save employee info for existing furlough claims to avoid data entry each time.
Submitting part-time claims will be painful
Sam Perkin, director, Zamu
Employers can see the advantages of only needing to bring people back part-time, and to only need to re-furlough somebody for a week. However, the complexity is horrid.
There are a lot of grey areas. For example, if you get a director that comes back part-time, how do you decide what their normal hours are? Directors work whatever hours are required. The guidance is to ask what are their usual hours in the past? Well, directors don’t usually record their hours in the real world.
There is going to be a lot of discussions around trying to work out just what usual hours are and how clients apportion them. There is a little bit of confusion around directors’ duties anyway – is posting on social media work?
I know HMRC has got an online form for them to process the hours, but it’s time-consuming, so most people have a spreadsheet to work it out. The complexity that’s been added to those spreadsheets is significant.
If you’ve got somebody that’s part-time furloughed and you’ve got to do a part-time furloughed pension, for example. You’ve got to apportion not just the work and the hours but also the pension, so that you don’t overclaim on it. There’s a lot of confusion out there in the real world about what is incorrect and what is right. The HMRC webinar isn’t very helpful, because it’s too complex to take in over an hour.
There’s a lot of work involved when people go part-time. Some people will be fairly straightforward if the hours are very rigid, but anything more variable is very tricky, and the work levels needed to put these claims in are going to be painful.
Next steps: I’ve prepared a factsheet for my clients. When more detail on CJRS2 came in, I spent a lot of time on forums and the HMRC information to put the factsheet together. That’s gone out to my clients so they are prepared and they know how the new system works, and they know what sort of records they need to keep.
Verdict: Claiming part-time furlough will be a painstaking process.
How HMRC can help: base the part-time furlough calculations on working days rather than calendar days. People are being paid less than they’d normally earn.
CJRS2 offers lots of opportunity for error
Della Hudson, founder, Minerva Accountants
We do the payroll for all but the biggest clients, so we’ll handle it all for them. Once I’ve recovered from the fit at the thought of it, we’ll get some spreadsheets set up and do it through there. Spreadsheets are the best thing for what are effectively one-off calculations, and we’ll submit manually from there.
Every complexity is an opportunity to trip up, and that’s just as true for accountants as it is their clients. It’s a case of keeping everything documented to prove that any errors were genuine, which will be the main defence. You need to make sure that the spreadsheets are set up properly. There’s the definition of ‘part-time’. You need to get the split right for the right periods and you need to use the right calculations for part-time working as HMRC are using calendar days, not working days.
It’s all about making sure that we take everything into account. We’re fortunate that none of our clients’ payrolls are too complex. I need to find out whether employers need to continue topping up to 100% when the furlough rate comes down. If that’s the case, then some businesses will have to start letting furloughed staff go. I think it will be the trigger for a lot of redundancies, though I think to a great extent, it will just be bringing the inevitable forward.
Next steps: The priority is to make sure that clients have the right people in the business when they need them – we’re working with them to determine how they will need to use furlough over the coming months.
Verdict: CJRS2 comes with many opportunities to slip up – proceed with caution.
How HMRC can help: open up the spreadsheet upload functionality to employers with less than 100 staff. This would reduce processing time and minimise the risk of typos.
Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.