What comes next now that the Coronavirus Job Retention Scheme (CJRS) has ended?

Check your claims

Following the end of the scheme, HMRC will be checking some claims. HMRC have said that they will be concentrating their checks on those who they think have been abusing the system and that they will not be actively looking for cases where the employer has simply made an innocent error.

We would therefore expect HMRC to be looking for issues such as the following, before approaching employers about CJRS claims being wrong:

• Whether the overall claim looks larger than they would expect based on previous filings
• Whether the number of employees and the type of employees claimed for appears credible
• Whether the pattern of RTI filings and claims is broadly in line with what they would expect.

Due to the complexity of the scheme, there will be many more employers with innocent errors in their claims’ histories (particularly in the early days when there was a lot of confusion), than HMRC are likely to check. However, it is a good idea to review your claims so that you are satisfied they are all correct, or alternatively so you can take action to put any mistakes right sooner rather than later, There is always the small chance that you will be randomly picked for an HMRC check and it is better for you to have corrected any errors than for HMRC to spot mistakes and require you to make amendments.

Typical errors could include:

• for variably paid workers the use of 2019/20 average pay details only (without doing the comparison);
• misunderstanding what employees can and, importantly, cannot do when on furlough;
• once flexi- furlough came in, incorrectly recording hours as worked vs on furlough;
• continuing to claim 80% of reference pay for months when the limit was 60% or 70%;
• incorrect use of pre-salary sacrifice pay figures;
• counting ‘discretionary’ pay items as ‘usual’ reference pay.

You can find the full collection of guidance on the CJRS to help you check previous claims, work out claim amounts and pay grants back on GOV.UK.

If you find you have made a mistake with a claim, you will either have claimed too much grant (known as an overclaim) or you will have not claimed enough grant (known as an underclaim).

Offsetting

HMRC have recently explained to us that employers can offset overclaims and underclaims for different employees in the same claim period. Therefore, you only have to repay any overclaim to HMRC to the extent that it is more than any underclaims in the same claim period. HMRC give an example in their guidance.

The errors must have arisen in the same claim period to be offset. So, for example, say an employer, Shiny Window Cleaners, has made a number of calculation errors:

• underclaimed by £100 for employee A in July 2021
• overclaimed by £200 for employee B in July 2021
• underclaimed by £50 for employee C in August 2021
• overclaimed by £200 for employee C in September 2021

Our understanding, based on our discussions with HMRC is that the employer can net off the errors in respect of employee A and employee B as although they are for different employees, they are in the same claim period of July 2021. Therefore, the overclaim for July 2021 is reduced to £100.

The employer cannot net off the employee C underclaims against any of the overclaims as they are for different claim periods.

This employer must repay the total overclaims of £300 (£100 for July 2021 and £200 for September 2021. The employer cannot amend the August 2021 claim, for the £50 underclaim as the amendment window has closed, although it might be possible to make a late claim if there was a reasonable excuse at the time the original claim was made.

In the most recent update to the GOV.UK guidance on offsetting we can see that HMRC have added a condition around the date of 11 October 2021. We are seeking clarification from HMRC about the relevance of this date. We will post any updates to our website.

Pay back any amounts owing

Where you have overclaimed an amount of CJRS grant, HMRC ask that you ‘voluntarily’ repay the overclaimed amount directly to them, for example, by bank transfer or debit card. To do this, you should request a payment reference number, which will begin with X – and then make payment within 30 days.

If you do not do this, then HMRC have put in place law that treats these excess payments as tax that needs to be collected-back from the employer at a rate of 100%, so employers can repay HMRC by including the excess amounts on the relevant tax return, which will then trigger the tax liability.

But paying back the money in this way is not the end of the story. Strictly, employers must also notify HMRC of the overclaimed amount within 90 days from the receipt of the payment (or change of circumstances that meant the grant was received incorrectly) or potentially face ‘failure to notify’ fines. There is no prescribed way of notifying HMRC – we suggest in the first instance, you contact them on the CJRS support line.

HMRC would like any overclaimed CJRS money paid back to them ‘voluntarily’ as early as possible and for employers who do not do this, HMRC require them to follow the 90-day rule and notify HMRC that it will be included on a tax return.

However, if employers (who did not know that their CJRS grant was incorrect at the time they received it) do not meet the 90-day notification requirement above, they should still ensure they pay back any overclaimed amounts as if they were tax via their tax return by the appropriate deadline. By doing so, there will be no ‘potential lost revenue’ and so no ‘failure to notify’ penalty (in line with general ‘failure to notify’ principles - for a discussion of these, and also the ‘reasonable excuse’ provisions that may apply, see HMRC’s dedicated factsheet.

For overclaims arising in 2020/21 for sole trader business employers, these would need to be included on the 2020/21 Self Assessment tax return with payment made by 31 January 2022. For limited company employers, the rules can be found in the Company Tax Return Guide available on GOV.UK.

Note that, different, more severe penalty rules apply for employers who knew that their CJRS grant was incorrect at the time they received it. We will not be considering this further in this article.

Finally, HMRC has the right to raise an assessment to claw back any excess payments at any time, as we explain here.

For more information on paying back CJRS grants, see the comprehensive by our colleagues in the ATT.

Make any top up payments to employees

If you have underclaimed an amount of CJRS grant and it resulted in you underpaying an employee (meaning that they didn’t receive 80% of their reference salary), you must still make good any amount that you owe them. Not doing so may mean that those workers did not receive the minimum amount that they are entitled to under the CJRS, which may invalidate your claim for that employee and mean it must be repaid to HMRC.

So, the employer Shiny Window Cleaners in the example above may well need to pay an extra £100 to employee A and £50 to employee C (even if they are out of time to claim it from HMRC).

Note: Where the 80% of reference salary requirements are met as a whole for an employee over all claim periods (despite there being shortfalls within some claims), HMRC will accept that the employer has paid 80% of reference pay to the employee for the total period covered by all the claims.

Making good any amount that you owe an employee must be done within a ‘reasonable timeframe’ for CJRS purposes. We understand from the GOV.UK guidance, that for most sole trader business employers, this means by 31 January 2022 for any underpayments arising in 2020/21 tax year. The deadlines for limited company employers are available on GOV.UK.

We will look at how employers should make any top up payments to employees, where it has been deemed necessary to do so (particularly given there are some complex tax and benefit implications), in a forthcoming article.

Report your CJRS grants

Remember to include the CJRS grants in your tax return. If you are a sole trader business employer, these grants are taxable income for your business and must be entered in box 16 of the full Self-employment pages or box 10 of the short Self-employment pages. The wages you paid out to your employees under the CJRS should be included as a business expense as usual and so should be offset when calculating your taxable profits.

Note, there is a box to tick on page TR8 (box 20.1) of the 2020/21 Self Assessment Tax Return to confirm that these payments have been included as taxable income for the purposes of calculating your profits.

If you have overclaimed an amount of CJRS grant and have not already told HMRC/paid it back, do not include that amount as business income in box 16/box 10 of the Self-employment pages – include it in box 1 on page TR5 of the main tax return in the section called ‘Incorrectly claimed coronavirus support scheme payments’.

For limited company employers, the rules can be found in the Company Tax Return Guide available on GOV.UK.

Any CJRS grant received by an employer who is an individual and not employing staff in the course of a business (for example, someone who employs a carer or a nanny) will not be taxable and does not need to be included in a tax return.

The GOV.UK guidance on reporting Covid-19 grants and support payments can be found here.