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Employment during Covid

HMRC guidance flags common Covid-scheme errors


HMRC has issued a must-read document for employers covering the common errors made in Coronavirus Job Retention Scheme calculations. This will help employers decide if they need to pay back or fight back.

23rd Aug 2022
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After being asked by professional bodies, HMRC has issued a questions-and-answers document that details the common errors made by employers in Coronavirus Job Retention Scheme (CJRS) calculations. This is a must-read document for employers, as it does give an indication of their compliance approach, including areas of flexibility, thereby enabling employers to decide if they need to pay monies back or if they can provide a defence for their actions during the operation of the scheme.

As I wrote in reference to the first tier tribunal (FTT) case, of Carlick Contract Furniture Limited vs HMRC: “CJRS will always go down as one of the most hastily arranged and administratively burdensome schemes that employers and payroll functions have ever had to implement, operate and comply with.” The employer (Carlick) was found to have claimed incorrectly for two employees because they were not on HMRC’s systems via a Real Time Information (RTI) return on either 28 February or 19 March 2020. This was regardless of the fact that they were employed mid-February 2020 but were too late to be included in the February payroll run.

Financial Act 2020, Sch 16 details HMRC’s extensive compliance powers where an employer has made errors, whether intentional or not. The 2020 Act refers to other legislation that gives HMRC the right to impose penalties for non-compliance. Up until recently, the only material that employers had about HMRC’s approach to compliance was contained in an 18 July 2022 Policy Paper entitled “Tackling error and fraud in the Covid-19 support schemes”. However, this did not refer to the common errors and what employers should do to correct them, such as correct the error, ignore the error or repay monies.

Long time coming

Several professional bodies have been asking HMRC for guidance on their compliance approach in different circumstances. While this has been a long time coming, it is welcome to see HMRC’s document “Common errors in the calculation of CJRS grants”. This is an insight into the issues that HMRC will look at in the compliance approach and where, maybe, there is some flexibility. 

I am aware that there is no intention to make this publicly available, so will outline the contents, while also recommending reading and saving the entire document. It is particularly welcome to see that the document refers to published guidance now housed on the National Archives website. 

Paying monies back

Where the employer has to pay monies back to HMRC, the document provides links to Pay Coronavirus Job Retention Scheme grants back on The deadline for notifying HMRC of a repayment overclaimed has passed, so it is good that the document refers to the guidance “Coronavirus Job Retention Scheme – receiving grants you were not entitled to”.

Note also that the link to pay grants back also includes details about the time limits in place for employers where they have claimed monies from HMRC but have not paid the correct amount to employees, which is a fundamental condition of the scheme.

Claims not in line with legislation and guidance

Of course, one of the main issues with the scheme was the changing legislation (6 Treasury directions) and ever-changing guidance (countless). HMRC’s approach to not following the later guidance is that they would have expected employers to take this into account by the start of the month following the revised legislation/guidance.

This is disappointing but only reflective of the Carlick case where adherence to legislation and guidance was key to HMRC winning the case, despite the employer operating within the spirit and intention of the scheme.

Incorrect HMRC guidance

This does not refer to the copious written guidance on but to conversations with an HMRC adviser (including webchats). If HMRC has given incorrect or “unambiguous” advice that the employer has acted on, there is no requirement to repay monies to HMRC. Importantly, though, this advice has to be evidenced.

Different calculation method

The third Treasury Direction issued on 25 June 2020 changed the calculation of the CJRS reference salary. The change was from a “what was actually paid” basis to a “what was actually earned or payable” basis. This caused great confusion for employers and software developers who developed CJRS solutions.

Perhaps comforting, is HMRC’s assurance that whatever method was used is acceptable and not considered to be abusive. As long as the employer was using a consistent method for the duration of the scheme (1 March 2020 to 30 September 2021).

National Insurance Contributions overclaims

In May 2020, HMRC’s “Work out how much you can claim for employer National Insurance contributions (NICs)” changed. Essentially, this clarified that the maximum employer NICs refund that could be claimed was 13.8% of the employee’s reference salary, in other words applying a ceiling.

HMRC expects that claims made from 1 June 2020 will apply this ceiling but will not regard claims in excess of this before this date to require repayment.

Different unworked hours calculations

Where an employee was flexibly furloughed, the employer could make a reclaim for hours not worked (making a payment for hours actually worked). HMRC’s guidance “Work out your employee’s usual hours and furloughed hours” was updated in September 2020 to clarify this calculation.

HMRC advises that it expects all calculations and reclaims from 1 October 2020 to follow the new guidance but claims for periods before this would not need to be re-calculated and re-paid.

Reference pay

There are five different questions and answers regarding the calculation of reference pay.

  1. While there was varying guidance during the scheme, the fundamental message is that HMRC will accept any reasonable interpretation of the lookback period for calculating reference pay. The two important considerations for employers are that there must be consistency of operation and/or justification when a change is made.
  2. Where an employer has not used the higher of average pay or the lookback period method for calculating reference pay for the variably paid, to determine the 80% that must be paid to the furloughed employee, HMRC says that the employer must perform this comparison.
  3. Where an employer has not considered elements of variable pay for employees that have a fixed salary, HMRC talks of “significant and variable amounts of non-discretionary payments”. In this regard, HMRC’s “Calculate how much you can claim using the Coronavirus Job Retention Scheme” guidance changed on 7 August 2020, replicated in the above link from 13 August 2020. Essentially, where the employee was paid fixed pay plus significant variable amounts, from 1 September 2020, HMRC do not accept that a fixed pay calculation was the correct method for determining reference pay, affecting the amount paid to the employee, knocking on to the amount reclaimed.
  4. Reclaiming more than 80% of reference pay after the taper was introduced in July 2021 (to September 2021). If this happened, the employer has claimed more than they were entitled to claim and should pay those monies back to HMRC.
  5. Including the value of a salary sacrifice in the calculation of reference pay. The value should never have been included. If pre-sacrifice salary had been used rather than post-sacrifice salary, again, the employer has overclaimed and monies need to be paid back to HMRC.

Supplementary questions

The document finishes with some supplementary questions. The important points to draw from these are:

  • HMRC will “generally” accept that all businesses had a need to use the scheme and Covid-19 did have a financial impact.
  • HMRC will not actively look for cases of innocent or potential error – though deliberate errors will be pursued and the employer will be required to repay monies. This does seem to go against their reclaims process in Carlick Contract Furniture Limited where the employer believed they had acted in the spirit of the scheme but this was not a factor when considering points of law at the FTT.
  • The employer and employee must have a valid furlough agreement on file and retain this. A furlough agreement is another scheme fundamental.



Replies (3)

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By Hugo Fair
23rd Aug 2022 13:19

Interesting, so thanks Ian.
I guess the epitome of 'better late than never' from HMRC - especially since all their deadlines and threatening letters have already been & gone. For some reason stable-doors keep popping-up in my brain!
But why the sense of secrecy - at the behest of HMRC or of ATT?

Anecdotally, I suspect the greatest volume of 'incorrect' claims will relate to the final 7 words of your article.
So strictly speaking ... does the absence of such an agreement on file make any (otherwise correctly calculated) claim invalid? Or will it be covered as a case of 'innocent or potential error'?

Out of interest, are there any available stats resulting from all the whistle-blowing that was (rightly) encouraged - for instance correct amount claimed but not fully paid to EEs vs correctly calculated but for EEs who were not covered vs incorrectly calculated, and so on?
It'd be interesting to know in terms of £recoveries ... but also with regard to how it does/doesn't relate to these FAQs.

Thanks (1)
By Ardeninian
23rd Aug 2022 16:21

ATT linked directly to the Q&A on this page on 4 August: - and they specifically say they are sharing it. So although it may not have been up in lights, it's not exactly on display in a locked filing cabinet with a sign saying "beware of the leopard", either.

See also ICAEW 9 August: and CIOT 3 August:

I can only assume that the professional bodies are in a position to publish a Q&A online in this format where HMRC are not.

Thanks (0)
Replying to Ardeninian:
By Hugo Fair
23rd Aug 2022 17:10

There's nothing technical (nor as far as I'm aware of a policy nature) to prevent the full FAQ being published on GOV.UK ... indeed (after an equivalent amount of badgering) they did just that in the early days of RTI. And so did TPR for AE, etc.

My point is that CJRS was hardly the preserve of professional tax practitioners. So, whilst I applaud the perseverance of those PBs, it's short-sighted of HMRC not to make the FAQs easily accessible to anyone who runs a Payroll.

Thanks (1)