Owner Kate Upcraft Consultancy Ltd
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HMRC furlough mistake adds to employers’ burden

An error embedded in HMRC’s CJRS calculator means employers may need to recalculate furlough claims for January. A new tweak of the CJRS calculation also applies from March 2021.   

9th Feb 2021
Owner Kate Upcraft Consultancy Ltd
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HMRC software mistake adds to business problems
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Just 10 days before the deadline for submitting CJRS claims for pay periods in January 2021 - which will be 15 February 2021 as the 14th is a Sunday - HMRC announced it had uncovered a mistake in its CJRS calculator that could mean claims have been over or understated.

HMRC apologised for this error saying: “We’re afraid our CJRS calculator on GOV.UK contained a software error, which we have now corrected.”

As a result, employers will need to recalculate their CJRS claims if they used the calculator before 21 January and all of the following applied:

  • The claim contained employees who are not on a fixed salary 
  • The employer used an employee’s pay for January 2019 as reference pay, instead of 2020
  • The employee’s pay was different in January 2019 to January 2020.

Where the employer used their employee’s January 2020 pay in the CJRS calculation, no correction is required.

Where the revised CJRS claim produces a different figure to the claim already submitted for January 2021, the employer needs to take the following action:

  • Where the claim was too high, this should be corrected in the next CJRS claim submitted, or alternatively the employer can make a repayment online to HMRC
  • Where the claim was insufficient, the employer should call the HMRC helpline to amend this by 1 March. 

Legislation update from March

The sixth Treasury direction to HMRC under The Coronavirus Act 2020 came into force on 1 February and runs until 30 April 2021. This is currently scheduled to be end of the furlough scheme, although many commentators expect the Chancellor will announce an extension in his Spring Budget on 3 March.

As the CJRS will be 12 months old in March 2021, there is a significant change to the reference pay in the calculation. For variable pay employees their reference pay for March and April claims will be based on the higher of:

  • The average pay over 2019/20, based on day counts if the employee was not in employment or working (because they were furloughed) for the whole of the tax year; or
  • March or April 2019.

Even if the employee was not furloughed in March or April 2020 these pay periods cannot be used as the comparator.

Salary sacrifice warning

When furlough was first introduced, I was surprised by how many employers appeared to have misunderstood what a salary sacrifice scheme was.

An effective salary sacrifice is a contractual change that reduces an employee’s cash pay in exchange for an employer-provided benefit in kind, it is not a purchase of a benefit from net pay. As such furlough reference pay could only ever be post-sacrifice as that is the pay that the employee is entitled to.

If furlough pay has been reduced by any deduction from net pay in respect of any salary sacrifice then the employee has not received the full 80% (or whatever percentage was applicable for the claim period) which means the employer is in breach of the scheme and the employee has a valid claim for an illegal deduction from wages.

HMRC would appear to be uncovering issues around salary sacrifice as it has added a new section and example 3.18 to the CJRS guidance.

In the additional guidance HMRC points out the obvious difference between a net pay arrangement pension scheme, where employee contributions reduce taxable pay as they are tax relieved but do not affect reference pay, and a salary sacrifice where there is no employee contribution as the reduction in contractual pay is in exchange for an enhanced employer-only contribution.

Claim and name

On 25 February HMRC will publish values relating to CJRS claims for December 2020 onwards. Also from that date employee’s personal tax accounts will be populated with a message that the CJRS claim has been made by the employer on behalf of the employee.

Unlike in the January publication of CJRS data, the company registration number (CRN) will be provided for each claim made by a company.

There are many entities without a CRN who have made a CJRS claim and it will be very difficult to draw any conclusions as to how much an employer has claimed, as these are details of PAYE schemes not of employers. Equally, the names attached to the published entries are those selected by the individual who set up the PAYE scheme, so are not a direct reflection of the name of the business entity.

I’m not convinced that these publications would deter any fraudster who has long disappeared along with the CJRS money. I’ll be concentrating on helping clients complete their furlough claims, while they are still struggling to stay in business.

Replies (10)

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By tom123
09th Feb 2021 16:21

Hi Kate - I don't understand this sentence. Surely if employer contributions reduce taxable pay, then that is, by definition a salary sacrifice?

:

In the additional guidance HMRC points out the obvious difference between a net pay arrangement pension scheme, where employer contributions reduce taxable pay as they are tax relieved but do not affect reference pay

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Replying to tom123:
rebecca cave
By Rebecca Cave
10th Feb 2021 13:30

I've fixed the typos in that section. Does it make sense now?

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Stepurhan
By stepurhan
10th Feb 2021 07:49

I look forward to the run of appeals against CJRS reclaims levied against anyone that used the calculator before this issue was fixed. This is farcical.

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By kestrepo
10th Feb 2021 09:58

Sorry but I disagree with your statement about salary sacrifice! The original HMRC guidance is clear that it is still possible with employee consent. Unless HMRC have made a retrospective change I feel you might want to look at the point made again.

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Replying to kestrepo:
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By Hugo Fair
10th Feb 2021 11:20

Which bit do you disagree with? And what is "possible with employee consent"?

Pre-salary-sacrifice Gross Pay(PGP) is contractually reduced (by the Salary Sacrifice agreement) to New Gross Pay (NGP). Then along comes CJRS ... where the claim amount (for the furloughed hours) is NGP * 80% (not PGP * 80%). And the full claim must be paid over to the employee WITHOUT deduction (other than of course for statutory deductions).

As an old mentor used to reiterate ... Salary Sacrifice is a contractual reduction in salary, NOT a deduction from it.

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By Nebs
10th Feb 2021 11:30

A 30% penalty for HMRC, for lack of reasonable care. And they should think themselves lucky, it would have been more under the old system just for size and gravity.

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By cdltg99
10th Feb 2021 16:00

HMRC’s CJRS calculator: I saw the warning about HMRC Calculator error on your site, nothing on the HMRC site as far as I can see nor any explanation from them of WHAT THE ACTUAL ERROR WAS. Although our January 2021 Furlough claim didn't appear to fit the criteria, I thought I would go and do a check on one of our employees claims as I remember some peculiarities on the site in January. I noticed the calculator version hasn't updated at all since my calculation printout done 10/01/21(basic IT protocol??). I entered the data for the employee twice getting two different answers(yes, the data entered was exactly the same), but the printed out calculation was different in structure.
I am thinking: What was the original error then? Is the error fixed, if so why is there no indication the version has updated/corrected on the site? Is there still an underlying error. I note that some of the calculations have also changed in terms of the order of applying the calculating methods as well. All a bit of a mess isn't it? Back to my spreadsheet I think!!!!

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Replying to cdltg99:
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By Hugo Fair
10th Feb 2021 21:02

There's no excuse for "no indication the version has updated/corrected on the site" ... and, whilst the error is reported to be fixed, there can be no guarantee that there aren't any further errors remaining.

However, you ask what the actual error was.
To which the answer is it only affected claims for pay periods in Jan 2021 - where:
* An employee was not on a fixed salary AND you used that employee’s pay from Jan 2019 (instead of 2020) as reference pay AND that employee’s pay in Jan 2019 was different to their pay in Jan 2020.
And the error?
* The employee’s Jan 2020 pay should have been used as reference pay in the CJRS claim calculation ... but the online calculator wrongly directed you to use Jan 2019 pay (which if different has generated the wrong result).

So, probably a fairly limited number of affected claims. BUT the casual way in which HMRC expects employers/agents to re-check existing claims (whether or not already submitted) is more than slightly aggravating ... as is the way in which the announcement crept out in the middle of an email on multiple topics (to an unknown list of recipients)!

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By DavidAWilks
10th Feb 2021 18:36

I must admit I have not and will not use the HMRC calculator. I tried it in the early days and the result from their calculation was £0.01 different to mine. I used my own logic and will defend it rigorously if challenged.

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By B.R.
11th Feb 2021 10:14

Has anyone had a JRS audit by HMRC? Our client received a phone call from HMRC to say that their calculation was wrong. The client asked us to assist. HMRC said that the gross figure was incorrect. We pointed out that HMRC were incorrectly using the gross wage after adjustment for employee workplace pension. Did they apologise? Did they agree that they were wrong and wasted a huge amount of time and cost? No. Their reply said "I have reviewed the information and accept the calculations provided." Is it possible that HMRC are using staff to manage furlough, who have never operated in payroll or taxation before?

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