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.
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.
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.