The Coronavirus Job Retention Scheme (also known as the furlough scheme) was put in place in March 2020 at the beginning of lockdown for companies that were unable to operate due to the pandemic or had no work for staff. Since then, a total of 11.5 million jobs have been supported by the scheme, and it's been a crucial lifeline to both employers and employees alike.
Due to the longevity of the pandemic, and the subsequent effect on UK SMEs, the scheme has been extended past its initial end date but is due to come to an end on 30th September 2021.
Below, Simon Thomas from accountancy firm Ridgefield Consulting talks us through how the scheme is being tapered off, how to make a furlough claim before the final deadline, and how alternative finance providers could help provide a cash flow cushion once the scheme ends.
Key changes to the furlough scheme
Before we explore the changes, here's a quick summary of how the furlough scheme works:
Through the furlough scheme, employers can continue paying 80% of employee wages, up to £2,500 a month, so that employees can be kept on the payroll. Each individual employer can also pay the extra 20% of their employee’s wage out of the business' pocket, if they wish. In order to make a claim, both the employer and the employee must agree to be put on furlough and the employer must have confirmation of this in writing.
As per the March 2021 budget announcement, the furlough scheme is extended until 30th September 2021 and the grants available will remain the same until 30th June 2021. Business owners should prepare now for the changes to the level of grant available which will take effect from 1st July 2021. From this date, employers will have to start contributing to the cost of their staff’s wages.
HMRC has created a table showing the government contribution from May through to September 2021 and the employer contribution for employees that are furloughed for the entire time.
In summary, this means that from the 1st of July 2021 onwards, employers will be required to contribute:
Employer contribution in July: 10% up to £312.50 for hours not worked
Employer contribution in August & September: 20% up to £625 for hours not worked
From 1st November 2020 to 30th June 2021:, the government will pay 80% of wages, capped at £2,500 each month.
Here's a closer look at how this works in practice:
From 1st July 2021:
- the government will pay 70% of wages, capped at £2,187.50 each month.
- the employer will need to pay 10% (up to £312.50).
From 1st August to 30th September 2021:
- the government will pay 60% of wages, capped at £1,875 each month.
- the employer will need to pay 20% (up to £625).
Within the claims, employers cannot include:
- employer contributions to the employee's pension.
- employer National Insurance (NI) or tax contributions.
Employers can continue to choose to top up employees’ wages above the 80% total and £2,500 cap for the hours not worked at their own expense.
Making a furlough claim
To make a claim, employers need the Government Gateway user ID and password they received when they registered for PAYE online. They can claim before, during, or after they process their payroll - as long as the claim is submitted by the relevant claim deadline. They cannot submit a claim more than 14 days before the claim period end date.
When making a claim, you:
- do not have to wait until the end date of the claim period for a previous claim before making your next claim.
- can make the claim more than 14 days in advance of the pay date (for example, if you pay your employee in arrears).
If you are unable to finish your claim in one session, you can save a draft. The employer must complete the claim within 7 days of starting it. Claims must be submitted by 11.59pm 14 calendar days after the month they are claiming for. If this time falls on the weekend or a bank holiday, then claims should be submitted on the next working day.
Other support available to your business
With the furlough scheme coming to an end in a few months, now is a good time to explore other sources of financial support available to your business. Whether it's to help balance your cash flow during tough times, or for a boost of finance to help facilitate growth, it might be worth looking into how alternative finance providers can help.
Multi-award-winning digital business lender Fleximize specializes in providing fast and flexible business loans to UK SMEs. With unsecured and secured options between £5,000 - £500,000 and loan terms ranging between 3 - 48 months, the team will be able to tailor their products to your specific business needs and could even have funding in your bank account within 24 hours. You can learn more about how alternative finance providers like Fleximize can provide a cash flow cushion to support your business once furlough ends here.
About the Author
Simon Thomas is the Founder and Managing Director of Ridgefield Consulting - Oxford’s leading independent accountancy firm. Simon has over 15 years’ experience as a chartered accountant and founded Ridgefield Consulting in 2010 after working for EY, one of the big four accountancy firms in London and the UK. Ridgefield Consulting offers a wide range of guidance on Coronavirus support schemes for businesses, proudly earning more 5* Google reviews than any other accountancy firm in Oxford.