How to avoid costly furlough mistakes

The government scheme which pays 80% of workers' wages has proved understandably popular in these difficult times. But you must be careful how you fill out the applications, warns Martin Cull from Page Kirk's audit team.

One of the most popular responses from the UK government to the COVID-19 crisis was surely the Coronavirus Job Retention Scheme, which allows companies to 'furlough' workers, with 80% of their salary paid by the state. Chancellor Rishi Sunak announced that the scheme will be extended until the end of October, with the possibility of partial furloughing, where some employees return to work part-time.

Although it seems like good news for bosses and workers alike, there is already an element of confusion over details. And given the rapid implementation of the scheme, it's perhaps not surprising that mistakes have already been made by some companies.

One example is the way in which SMEs have wrongly included the cost of employer National Insurance Contributions (NICs) in the furlough applications. Prior to the scheme, many would have been taking advantage of an Employment Allowance, which provides up to £4,000 of tax relief on the NICs for businesses paying less than £100,000 per year. Unfortunately, many small companies haven't taken this allowance into account when applying for the scheme. Instead, some have included the full cost of NICs in their application, essentially covering the cost twice.

So what are the implications? Well, if you think you might have made the same mistake, you could face an unwanted bill from HMRC. Potentially reaching thousands of pounds.

There's another issue that comes up fairly regularly too. Businesses can use the wrong basis period or reference earnings for their calculations.

Technically, the furlough claim calculations are completely unrelated to the payroll for the period covered by the claim. Taking May as an example, if your employees are paid on a variable basis, the amount which can be claimed in respect of an employee for May 2020 is the higher of 80% of:

• This employee's average earnings across the 2019/20 tax year; or
• This employee's earnings for the same period from the 2019/20 tax year (May 2019, in this case).

Because the claim amount is based on the two basis periods set out above, we are finding that in some cases, clients are eligible for less than they might reasonably expect. For example, if you have an employee who worked part-time throughout 2019/20, who has recently moved to full-time work, you might expect to be able to make a claim for them based on their full-time salary. In fact, your claim must be based on their 2019/20 part-time earnings, which were much lower.

It's crucial that any furlough applications are completed professionally and overseen with a fine toothcomb by a trusted adviser. The last thing you need right now is an unexpected demand from the Revenue turning up on your doorstep.

Why not make use of Page Kirk's expertise to take the stress away and make an application on your behalf? Our experts are able to calculate exactly what you're entitled to. If you need any more information, just speak to a member of our team today by calling 0115 955 5500 or email enquiries@pagekirk.co.uk