The Chancellor has set out plans for a Coronavirus Job Retention Scheme to underwrite 80% of the salaries of workers if they have to be temporarily laid off, but the system could be open to abuse and details are limited, reports Sara White

23 Mar 2020

Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis. The scheme will be in place for three months initially and all UK businesses are eligible.

The salary subsidy will be paid through a new HMRC system and will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month.

An HMRC spokesperson told Accountancy Daily: ‘HMRC is working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.

‘The Chancellor has announced it will be backdated to March 1.

‘We will be able to follow up with more detail on the implementation of the scheme shortly.

‘As the new system has just been announced we’re working out the details as fast as possible.’

HMRC will have to create a new IT software system to run the scheme. This will take until April to complete as it requires a brand new system to reverse pay staff normally paid under PAYE rules.

Even in the face of this unprecedented global covid-19 crisis, there will have to be tight controls of the job subsidy to avoid abuse by unscrupulous employers who could see it as a way to simply lay off staff with no intention of rehiring them and creating ghost staff.

There is insufficient detail available at the moment to ascertain what kind of controls will be in place to monitor abuse of the system.

There has been criticism that the scheme with warnings that it takes controls away from businesses who could have put staff on half time and equally employees could have found other jobs in critical areas where there is real need at the moment.

It is also not clear whether directors and shareholders of owner managed companies can put themselves ‘on furlough’, or how it affects zero hours workers.

The subsidy could cost up to £4bn a month to run depending on the scale of take-up, based on the £2,500 cap.

The Institute for Fiscal Studies warned: ‘There are some wrinkles in the policy. Depending on the details it might turn out to be extremely generous to those who work for their own companies.

‘Some employers might find it frustrating that it rewards them for having half of their workforce not working at all when they would much rather have all of their workforce working half-time.

‘It will discourage employees from moving to job opportunities that will be opening up, including in areas where the virus outbreak has increased demand for workers. And this policy does not help the self-employed who, overall, gain relatively little support from Friday’s announcement.’

With the rushed nature of the scheme announcement, inevitably there is limited information available and no technical guidance from HMRC as yet. Accountancy Daily has contacted HMRC for further details.

‘While it is not compulsory to use this scheme, it can serve as an alternative to a lay-off situation while helping both employees and workers to cover the many costs that are arising as a result of the outbreak. There are also no restrictions to be put into place; businesses of all shapes and sizes will be able to benefit from this.

‘It is not clear how many workers this will extend to yet, such as atypical workers and those on zero-hour contracts. That said, the government is currently indicating this scheme will cover as broad a group as possible. It is highly likely that many zero-hour workers are to be affected by the closures. However, it may be worth waiting for confirmation for the government before pursuing this option for individuals who fall into that category.’

How to access the scheme [information subject to change, issued 22 March]

You will need to:

  • designate affected employees as ‘furloughed workers,’ and notify your employees of this change – changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation;
  • submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required).

More to follow when confirmed on whether zero hours workers will be covered by 80% scheme