17 April 2020
On 15 April 2020 The Treasury issued a Direction to HMRC, requiring HMRC to be responsible for the payment and arrangement of amounts to be paid under the Coronavirus Job Retention Scheme (CJRS). The Direction, which has more legal weight than previously published guidance, runs to 12 pages and is set out in a schedule. Largely, the details of the scheme mirror guidance that has already been published on how the furlough scheme will work (see our April edition of Law at Work) but there are some important clarifications and differences.
The Direction makes clear at the outset that "the claim must be made in such form and manner and contain such information as HMRC may require at any time (whether before or after payment of the claim) to establish entitlement to payment under CJRS". This means that employers cannot be completely sure, even after payment has been made, whether payment of furlough wages will eventually be allowed by HMRC since further conditions may be introduced in future. Hopefully the scope for challenge will be limited since the guidance and Direction are now fairly comprehensive.
Previously, guidance indicated that employers could qualify for the wages reimbursement scheme if they operated a PAYE system as at 28 February 2020 in respect of employees claimed for. This date has now changed to 19 March 2020 (the day before the CJRS was announced). This is in response to criticism that many employees who started new jobs in March would be left out of the scheme. Additionally, the Direction provides that real time information (via a payroll system) must have been submitted to HMRC in respect of the employee claimed for as at 19 March 2020.
This change may not be as radical as it first looks. Commentators have pointed out that many employees are paid towards the end of the month and, in any event, many new joiners will not have been put on payroll by 19 March. So it is possible that many employees will still be left out of the scheme.
Significantly, the Direction provides that one of the conditions for HMRC reimbursing furlough wages is that the employee and employer must have agreed that no work will be undertaken for that employer and this must be agreed in writing (which includes email). This differs from the guidance which only required employees to be notified by their employer that no work should be undertaken.
Employers who have already furloughed employees will want to revisit the terms on which this was communicated to employees, satisfying themselves that there was an agreement with the employee that they would not undertake work for them. The precise wording should be considered, along with the employee's way of signalling agreement to this (usually by being required to sign and return a letter). If the initial communication was defective, this should be remedied. It is to be hoped that HMRC will not, in the end, take a too legalistic approach to whether 'agreement' was reached at the outset but employers should do their best now to protect their position.
At the time of publishing this alert, the government has announced that it has extended the CJRS to the end of June.
Outside the scope of this update, the Direction contains further guidance on matters such as how to calculate regular wages, what to do about employees on sabbaticals or family-related leave, and how sick pay operates with furlough. Due to the complexity and rapidly changing nature of the guidance, please seek regular advice from one of the team.