The future of the CJRS

25 August 2021

The CIPP policy and research team discuss what is next for the CJRS and what payroll professionals should be aware of as we slowly transition out of the pandemic

On 20 March 2020, Rishi Sunak delivered a speech that would continue to have implications for payroll professionals for years to come. On that Friday evening, after a turbulent week of government announcements and media coverage, the newly appointed chancellor announced the introduction of the coronavirus job retention scheme (CJRS). The words “for the first time in our history, the government is going to step in and help to pay people’s wages” rang profoundly in the ears of the payroll profession who were suddenly thrust centre-stage of the Covid-19 support measures.

The concept of furlough was foreign to most payroll teams at the beginning of 2020, yet now the scheme has been extended for the fifth time to the end of September 2021. Eligibility criteria have been updated to capture employees with start dates over three different periods, and employer contributions to the scheme have changed no less than six times. In July, the introduction of flexible furlough provided much needed agility in the scheme, but unfortunately this also brought with it more complexity and administration for teams managing these payments.

The CJRS has been a resounding success – it has saved countless jobs and kept businesses afloat in the most challenging of circumstances. For many payroll teams, it has also provided a platform to highlight to organisations the capabilities of an often-overlooked function. Payroll teams have remained adaptable and agile in their response times to changing legislation and guidance. We were recognised as key workers and led the way in technology and process changes to ensure proper management of CJRS implications. Payroll, for perhaps the first time, had an undeniable impact on the bottom line.

CJRS has, of course, come with some drawbacks. The cost of the scheme (at the time of writing) is over £64 billion – to put that into context, that is 140% of the total government borrowing for the whole of 2019. It is inevitable that this level of cost will take generations to repay. The level of government spending throughout the pandemic has led to the creation of the Taxpayer Protection Taskforce (TPPT). Announced in the Budget speech in March 2021, the TPPT is a £100,000,000 investment targeted at tackling fraud in Covid-19 support schemes.

The return of furlough

‘Unprecedented’ was a term that was used on an almost daily basis in 2020. The government, employers and employees approached life and work through a completely different lens as a result of the pandemic. However, in the future, economic downturn and recession now have a precedent to consider – CJRS.

Shifting to an employment status of ‘furloughed’ has created the ability to keep unemployment rates down, support individuals and businesses in economic uncertainty, and will inevitably be something that will be put to the government in the future. Some individuals are already campaigning for a permanent furlough scheme since downturns aren’t solely linked to recessions, and it is quite possible that by the time this article is published, an extended or amended scheme will be made available past September 2021.

Although many treat payroll professionals as amateur psychics (‘of course I should have known Bob was leaving even though you didn’t tell me!’), the truth is that we don’t know if furlough will become a permanent part of our role. However, it is incumbent on payroll teams and leaders to remain close to guidance and legislative changes, and work with software providers to ensure that should we need it again we’re able to continue to keep the UK paid.

CJRS audits

The TPPT will look to payroll teams over the coming months and years to understand how businesses remained compliant with the complex and challenging guidelines and legislation surrounding CJRS. The TPPT is designed to target deliberate fraud, and its consistent message is that it is not looking to investigate genuine mistakes. Of course, the onus will be on payroll teams to demonstrate how they implemented systems, processes, and compliance checks to evidence that there was no fraud taking place.

In May 2021, the TPPT issued 10,000 letters to employers who they believed may have made mistakes with their claims, urging them to check their claims, to confirm to HM Revenue & Customs (HMRC) if they had overclaimed and to repay any amounts due. Employers that did not satisfy the TPPT query will inevitably face further investigation in the future.

An early part of the CJRS guidance confirmed that employers should retain their furlough records for six years, including:

the amount claimed and claim period for each employee
the claim reference number
calculations for the claim
usual hours worked, including calculations for flexibly furloughed employees
actual hours worked for flexibly furloughed employees.

In addition to the above, employers should also have evidence of the change in the employee’s employment status, changing them to become a ‘furloughed employee’. Employers would also be encouraged to maintain process records to show how they ensured employees did not work during furloughed periods.

Whilst the TPPT is currently focused on deliberate fraud, HMRC has the power to issue penalties where employers were in receipt of a grant to which they were not entitled. The onus sits with the employer to check their claims are accurate, and employers have a set timeframe to repay once an error is identified.

Some have commented that this approach deters employers from checking claims, since the onus of repayment only appears when the employer finds out about a mistake. However, HMRC has made it clear that where employers are unaware of an overclaim, no penalty will be charged providing that the amount is paid back in the relevant time period. That time period ends on 31 January 2022 for sole traders or partners, and for organisations it ends twelve months from the end of the accounting period.

HMRC is giving employers time to review and check claims for accuracy. There is clear acknowledgement that mistakes can happen; however, payroll professionals should not assume that this provides them with reassurance not to audit the accuracy of claims made. The retention requirements of six years offer a clear indication that, whilst initial inspections will be looking to combat fraud, there is still potential to revisit claims where genuine errors resulted in overclaims.

A chain reaction

Though September may bring an end to the CJRS, the knock-on impact that the scheme has had will continue to be felt for months, and possibly years to come.

Women who have been furloughed who go onto maternity leave must have their average weekly earnings calculated based on their normal pay, not their earnings under the CJRS. This will mean that payroll teams will need to consider earnings in the qualifying period and whether or not they have been impacted by furlough. This can be particularly complex when working with flexible furlough or individuals who work variable hours.

Unfortunately, termination payments will be an inevitable calculation across many payroll teams, and payroll professionals must ensure that redundancy payments are reflective of the employee’s normal earnings, not their furloughed rate of pay. For those on notice of termination, they should not be furloughed during the notice period as it will not count towards their notice entitlement.

Reduced earnings through furlough periods have potential to impact the P60 certificate figures for three tax year ends. Anecdotally, employees are already seeing problems created by this when applying for mortgage applications. Banks have confirmed that mortgage applications will be possible, but eligibility would be based on furloughed income.

The ethical picture

In 2020, many employers opted to use the CJRS in the midst of an uncertain economic outlook, but since then employers, such as Halfords, Ikea and Primark, have been reported to have repaid their CJRS claims. In these businesses, the financial impact of Covid was not as significant as first predicted, which made repayment a viable option.

CJRS is not limited to organisations that have suffered a financial detriment due to the pandemic. Companies that left 2020 in a positive financial position are not being asked to return funds received; however, businesses such as XPO logistics have already come under fire for paying out large amounts of bonuses whilst having received millions of pounds in CJRS claims. The ethical question of whether it is right for businesses that turned a significant profit to retain this funding is likely to continue to make headlines in future. Given the level of debt the UK has incurred, I would suggest that companies that find themselves in a similar situation look to the heart of the scheme – to save lives and livelihoods – and consider whether the scheme has enabled this, or whether it has simply created a healthier bottom line.

Final summary

Payroll professionals will not be able to turn off the lights on CJRS when (or if) it ends in September. The wider implications on audit, statutory payments and the unknown potential for future schemes will be just some of the considerations for payroll teams across the UK. The economic impact of CJRS goes further still – the debt built up by this scheme will be paid back for generations to come. For that reason, businesses should be encouraged to review their claims with hindsight, in the wider context of their year end position and to consider whether the example set by Ikea, Halfords, and Primark is something they could follow.