The much talked about announcement on the relaxation of social distancing rules was made on Tuesday, and many businesses are now preparing to reopen from 4 July. The changes to the furlough (Coronavirus Job Retention Scheme) rules from 1 July will enable them to do this on a phased basis, and we have explained how this will happen below, as well as providing a reminder about payment of Vat in June. 

Changes to Furlough Scheme from 1 July

Now that the Government has announced the relaxation of the social distancing rules from 4 July and is allowing various hospitality outlets and other businesses to reopen, many employers will be looking to take back staff from furlough, but will be nervous about bringing them back full time, particularly where their capacity is limited by the rules. It is therefore especially relevant that the rules for furloughing staff have been altered as of 1 July, so that staff can be taken back to work on a flexible basis, rather than under the quite proscriptive rules of the current (original) scheme.

The changes that were announced on 12 June have two distinct effects:

  1. The ability to allow staff to be “part-time furloughed” so that they can work for part of a week or day and be paid their full rate of pay, with the non-working hours being treated as furlough and qualifying for the usual 80% grant (“flexible furlough)
  2. The gradual reduction in the level of grant available for periods of furlough, starting as from 1 August.

Flexible Furlough

The new scheme allows staff to be brought back to work for any number of hours and shift patterns, but there are rules to stop “unfair” exploitation of the scheme, as follows:

  • It will not be possible to increase the number of people who will be furloughed from those which have been claimed for under the old scheme. To enforce this, the rules specify that no claim under the new scheme can include more people than the largest number included in a claim under the old scheme, and any employee furloughed under the new scheme must have been validly claimed for under the old scheme – this latter rule was the reason why employers were warned to furlough any staff by 10 June if they had not already been furloughed, so that they could be the subject of a full three week claim under the old scheme. It does not however mean that anyone who was not furloughed from 10 June cannot be furloughed under the new scheme – they will qualify as long as they have been included in any other earlier claim under the old scheme.


  •  It will not be possible to artificially increase the contractual hours for staff in order to enhance the number of furlough hours – the proportion of hours worked/furloughed will be based on the “usual hours” before the Job Retention Scheme started in March. This is straightforward for employees on fixed hour contracts, but for many of the businesses who will be opening up, a lot of their staff will be on variable hours contracts so their “usual hours” will need to be calculated using an average number of hours looking at their working pattern in the two years 2018/19 and 2019/20. If they did not work for the employer for the whole of that period, they will qualify as long as there was a PAYE record for them at 19 March and the usual hours will be based on the period when they were working for them. The calculations are too complicated to be described here, and also for HMRC who have not produced a calculator as they did for the original scheme. It will be up to the employers (and/or their advisers) to work this out, based on the rules and examples in the HMRC guidance here.


  • It will not be possible to enhance the grant claim by increasing the rate of pay because the grant has to be based on the amount being paid prior to 19 March – the appropriate rate will already have been calculated in connection with claims under the old scheme.

The new scheme lives up to its “flexible” name through the ability of employers to bring employees on and off furlough and vary the hours/days worked in a week. Generally it will be possible to bring people back to work for whatever work pattern you want. If your business has picked up but you are concerned about a possible “second wave”, you can bring your staff back to work and still have the possibility of refurloughing them if the worst happens, but only those who had been furloughed for a period up to 30 June (see above).

The rate to be paid for working hours is up to the employer, but it will not affect the amount of grant and cannot be less than 80% of the 19 March figure which has been used throughout the first scheme.

Because the furlough will not cover the whole period of a claim where flexible working is being used, HMRC have reduced the maximum amount of a furlough claim from £2,500, and that figure will now be pro-rated down to relate only to the furlough period – for instance if the furlough is for one half of usual hours, the maximum payable will be £1,250 per month. Claims should also not be made in advance unless you are sure of the number of hours that will be worked by each employee claimed for – if it turns out that these are changed after the claim and an over claim is made, this will have to be paid back using the error correction process.

At the moment the scheme is set to finish on 31 October, but this could be extended in the event of a second wave. Also there is always the possibility that it could be extended for certain sectors only, such as live entertainment, theatres, etc. if they can still not open by the end of October, but that is just speculation at the moment.

Because the new flexible scheme represents a distinct change from the old scheme, it will be necessary to issue people who are furloughed after 30 June with new formal “furlough agreements” to replace those that were issued at the start of the first scheme, and employers need to refer to their HR advisers for details of these requirements.

Reduction to Amount of Grant

The Job Retention Scheme has been generally acknowledged to have achieved its aim of protecting jobs in Coronavirus affected businesses, but at a massive cost to the economy. The new scheme therefore incorporates a gradual reduction in the amount of grant payable during the period up to what is scheduled to be the final month of the scheme in October.

This is being done on a monthly basis as follows:

  • From 1 July the grants will be unchanged from the original scheme – that is 80% of salary and related employers’ NICs and pension contributions, with a maximum salary grant of £2,500 per month.
  • From 1 August the employers’ NIC and pension contributions will not be included in the grant.
  • From 1 September the amount of the salary grant will reduce to 70%, although employers will still have to pay at least 80% (of 19 March salary rate) to furloughed staff, subject to the maximum of £2,500 per month. The grant will have a cap of £2,187.50 to reflect the reduction in the rate. These amounts will be pro-rated for the proportion of “usual hours” on furlough, as described under the flexible furlough rules above.
  • From 1 October the amount of the salary grant will reduce to 60%, with the minimum salary still at 80% and grant and salary capped at £1,875 (to reflect the reduction to 60%) and £2,500 respectively (pro-rated as for September).

Because of the differences in the level of grant for each month, it will not be possible for claims to be made across a month end, so if an employee is furloughed for a period spanning two months, a claim will have to be made up to the last day of the first month, and a new one from the first day of the next. It should also be noted that a claim under the new scheme must normally be made for a minimum of one week (at least 7 calendar days), but shorter periods can be used to fit in with the “month end” rule if the claim includes the first or last day of the month.

These reductions mean that from 1 August furloughed staff will start to incur a cost to businesses, and this may trigger the start of hard decision making in relation to people who can still not be profitably employed, with the cost increasing through September and October before the grants disappear completely as from 1 November. Businesses should therefore be starting to plan for worst case scenarios over the next four months and ensure that they have the necessary financial projections and HR provisions in place.

End of Vat Deferral

One of the first measures introduced by the Government was the ability of businesses to defer the payment of Vat due on Vat returns until 31 March 2021. The measure covered payments due between 20 March and 30 June, so the payments due on 7 July for those businesses with Vat returns due for the quarter ended 31 May will not be covered. Businesses who will not be able to pay this bill should contact the HMRC’s payment support service on 0300 200 3835 and request time to pay – before doing so details of the specific reason for the lack of funds, and a proposal for payment should be put together.

For those businesses who are able to pay this bill, they need to ensure that the direct debit that was deactivated to stop the February payment being made on 7 April has been reinstated for the payment due on 7 July. HMRC have assured taxpayers that they will not use the new mandate to collect the deferred Vat bills, but will be announcing rules for the collection of those amounts by 31 March 2021.

Author: Peter Hedgethorne, Director, Plus Accounting

Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.

Date Published: 25 June 2020