Coronavirus: Employees: work changes

Updated on 3 April 2020

The coronavirus (COVID-19) outbreak is having far-reaching financial impacts on individuals and businesses across the UK, and indeed across the world. You may be worried about a reduction in your hours or losing your job. This page explains some of the tax and employment issues you need to be aware of and highlights what financial help you may be able to access.

If you are off work due to illness or because you are self-isolating, see our employees – illness or self-isolation guidance.

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⚠️ We are working hard to ensure this guidance is up to date – however you should bear in mind that things may change on a daily basis as the Government respond to the ongoing situation.

I've agreed to take a pay cut/work fewer hours

You and your employer are free to agree on whatever terms and conditions you choose, subject to the various minimum rights and protections set out in employment law.

In terms of pay, even in these difficult circumstances, you need to ensure your employer is paying you the National Minimum Wage (NMW).

You need to consider carefully the effect that a reduction in income/hours may have on things like:

(Workers who consistently earn below the National Insurance lower earnings limit (LEL) may fail to qualify for a range of contributory benefits such as contributory Jobseeker's Allowance and the state pension. In addition, entitlement to both Statutory Sick Pay and Statutory Maternity Pay are also dependent on whether earnings are above or below the LEL. The LEL is £118 per week in 2019/20, rising to £120 per week in 2020/21.)

If my work changes – how does that affect my tax credits?

Working tax credit entitlement is based on meeting certain working hour thresholds (16, 24 or 30 depending on your circumstances). The number of hours you work is generally based on your ‘normal’ working hours.

With the current situation, you may have had your normal hours reduced, have been laid-off temporarily, been ‘furloughed’ or made redundant. You only need to report a change to HMRC when your normal working hours change – temporary changes may not need to be reported. Use the table below to help you understand if you need to report a change in your working hours to HMRC.

⚠️ Warning: This is based on the latest information we have from HMRC – the coronavirus situation has developed quickly and rules are subject to change/updating – please ensure you check back at regular intervals on this website and GOV.UK.

Change What does it mean for working tax credit? When do I need to report a change to HMRC?

Temporary reduction in hours: For example, you normally work 32 hours a week but have been reduced to 12 hours a week due to the coronavirus crisis.

HMRC will treat you as continuing to work your normal hours (those before the reduction) for at least 8 weeks. There will be no change to your working tax credit entitlement during that period.

You do not need to tell HMRC about the temporary reduction initially. Check GOV.UK after 8 weeks to see whether the period has been extended or whether you need to report the change at that point.

Permanent reduction in hours: For example, you usually work 35 hours a week but your employer reduces your hours to 20 permanently. 

Your normal hours will change for working tax credit. Depending on how your hours change you may get less working tax credit or you may no longer qualify for working tax credit. If you no longer qualify, you may get a four week run-on of working tax credit.

You need to tell HMRC as soon as the change to your hours becomes permanent. You can do this via the online service or via the tax credits helpline

Temporarily laid-off: This means your employer does not have enough work for you but intends to recall you when work becomes available again.

Due to the current Coronavirus crisis, HMRC will treat you as continuing to work your normal hours (those before the temporary lay-off) for at least 8 weeks. There will be no change to your working tax credit entitlement during that period. We are awaiting further guidance as to what will happen after 8 weeks. 

You do not need to tell HMRC when you are laid off if it is temporary. If it is still ongoing after 8 weeks you should check GOV.UK to see whether the period has been extended or whether you need to report the change at that point.

Note: if the lay-off is made permanent at any point or you are made redundant you must report this change straight away to HMRC. 

Furloughed workers: This is where you agree with your employer to vary your contract to become ‘furloughed’ – this usually means you will be placed on unpaid leave. 

If you are furloughed in the current situation your employer may be entitled to a grant to cover 80% of your salary (up to a maximum amount) via the coronavirus job retention scheme.

Due to the current Coronavirus crisis, HMRC will treat you as continuing to work your normal hours (those before the furlough) for at least 8 weeks. There will be no change to your working tax credit entitlement during that period. We are awaiting further guidance as to what happens after 8 weeks.

You do not need to tell HMRC when you are furloughed temporarily. If it is still ongoing after 8 weeks you should check GOV.UK to see whether the period has been extended or whether you need to report the change at that point.

Self-employed: If your hours reduce or your self-employed work temporarily ceases.

As long as you are still trading (i.e. you haven’t completely closed down your business) HMRC will treat you as continuing to work your normal hours (those before the reduction due to coronavirus situation) for at least 8 weeks. There will be no change to your working tax credit entitlement during that period. We are awaiting further guidance as to what happens after 8 weeks.

You do not need to tell HMRC about a temporary change in your hours. If it is still ongoing after 8 weeks you should check GOV.UK to see whether the period has been extended or whether you need to report the change at that point.

Note: If you cease self-employment completely and don’t intend to continue trading then you will need to report that as a change of circumstances to HMRC when your self-employment ceases.

Redundancy: You lose your job.

If you no longer qualify for working tax credit, you may qualify for a four-week run-on of tax credits.

You need to tell HMRC about this change as soon as possible.

Note: If you lose your job and get another job within 7 days, assuming your new job meets the hours requirements for WTC, you will remain entitled to WTC despite the gap but you should give HMRC your new employer’s details.

Sickness/illness

Many people will continue to be treated as ‘in work’ during periods of sickness or illness for working tax credit purposes.

See our guidance here which explains the rules in full.

If you continue to be treated as in qualifying remunerative work for your period of sickness or illness under existing rules then you will only need to notify HMRC of a change at the point you are no longer treated as in work.

 

Childcare

Childcare support via WTC is linked to your working hours – as long as your are treated as working your normal hours, you will continue to qualify for childcare support if you need it.

See above for the changes you need to report and when if your work changes. For information about how the coronavirus affects childcare support and benefits for children see our guidance.

 

Tax credits are based on annual household income. As we are currently in the 2019/20 tax year, your award will either be based on an estimated 2019/20 income or your 2018/19 income. If your income falls, you can usually give a new estimated income to HMRC. Whether this leads to an increase in your award depends on whether your household income falls by more than £2,500 compared to your previous year income. If the reduction in your income is less than £2,500, then there will be no change to your current year award. However, when the new tax year starts on 6 April, you should be sure to give HMRC an updated estimated income for 2020/21 so they can see if your award can be adjusted. You must be careful not to over-estimate any fall in income as if you do there may be an overpayment at the end of the year.

⚠️ Warning: If you are already in receipt of tax credits and find yourself needing extra financial support, for example you need to claim help with paying your rent, you may need to claim universal credit (UC). If you do this, your tax credit claim will end and it is unlikely you will be able to go back to tax credits at a later date. If you, or you and your partner if you have one, have reached state pension credit age, then you cannot claim UC – but may be able to claim pension credit instead.

UC is gradually replacing six other benefits: working tax credit, child tax credit, housing benefit, income support, income-related employment and support allowance and income-based jobseeker’s allowance. The majority of people can no longer make claims to these other benefits, although there are two exceptions. Instead, if you need financial support you will need to claim UC.

You should also be aware of the following:

  • If you or your partner get or have recently received a severe disability premium in certain benefits or are classed as a ‘frontier worker’ you may be able to make a claim for one of the benefits that UC is replacing such as housing benefit alongside your existing tax credits. See our information in the main part of our website. This is complex and you should seek advice BEFORE making any UC claim if you think this might apply to you.
  • If you are currently receiving any of the benefits UC is replacing, they will end when you make a UC claim
  • UC takes into account savings and your partner’s circumstances and income. If their income is too high, you may not qualify for any help.

The benefits system is complicated. If any of the points above apply or you are unsure, you should seek specialist welfare rights advice before making any UC claim.

I've agreed to work at home

For arrangements involving home working, there are potential tax implications to be aware of, including:

  • Tax relief for work-related expenses for the employee – whether at the flat rate or based on actual expenses if evidence is kept. See our guidance here for more information (note, we assume that HMRC will accept the coronavirus situation as one where you were 'required' to work from home, meaning that a deduction for unreimbursed expenses is available – we will try and confirm this with them).
  • Tax exemption for homeworking costs met by the employer – see HMRC’s guidance here for more information.
  • Possible exposure of home to business rates instead of council tax – see here for more information (although this is unlikely if there is just minor 'business' use).
  • The potential impact on using part of the home for work on the eligibility for private residence relief for capital gains tax (CGT) – see HMRC’s guidance here for more information. However please note that if you use a room in your home for both business and private purposes – for example, you use a room as an office, but you also use it as a guest bedroom – this will not impact availability of relief from CGT.

I won’t work again before the end of the tax year – can I claim a tax refund?

If you receive employment income and pay tax through the Pay As You Earn (PAYE) system you may sometimes pay too much tax, for example, if you stop work part way through the tax year.

This is because the personal allowance (£12,500 in 2019/20) is usually divided throughout the year so you receive a proportion in each pay packet. If you stop work part way through a tax year, you will not have received your entire tax-free allowance and will have paid too much tax.


Example:

Luke is on a zero hours contract and is paid weekly. Luke's last payslip (dated 13 March) indicated he had earned £14,560 and paid £556.20 in tax. On 16 March, his employer told Luke there is no work for the foreseeable future.

At the end of the tax year Luke's tax position will be:

Earnings              £14,560

Less PA                 (£12,500)

                              £2,060 @ 20% = £412

We can see that Luke has overpaid £144.20 in tax (£556.20 less £412). This is because up until 13 March (week 49 of the tax year), Luke had only been given 49 chunks of his personal allowance (£11,778), whereas actually he is due £12,500.


In such cases, HMRC’s automatic reconciliation system should aggregate his pay and tax details after the end of the tax year and HMRC should issue him with a tax repayment automatically. He should also receive a P800 tax calculation. It is important that he checks the calculation and that the repayment is correct, as set out in our guidance.

P800s are usually issued in the summer months following the end of the tax year. If you do not want to wait until then, you should be able to prompt HMRC to reconcile your position/issue your refund by contacting them (however they will probably not be able to action your request until after 6 April 2020). There is more information on how to do this, including example letters, in our tax basics section.

You should note that if you are expecting a P11D (a benefits in kind statement) for 2019/20, these are not due until 6 July 2020, so HMRC may not be able to reconcile your position/issue your refund before then.

If you have finished working for your employer completely, and can't wait for your P800 calculation, you can ask HMRC to issue your refund by using form P50 (although this can be used to trigger in-year refunds, as we are so close to the end of the tax year, you may find that you have to wait until the end of the tax year for your refund anyway).

You should not need to send in your P45, however if the details on your form P50 do not match HMRC payroll records, then you may be asked to send it in – so keep it somewhere safe.

Note: you cannot use form P50 if you are claiming, or intending to claim certain taxable state benefits (such as Jobseeker's Allowance or contributory/new style Employment and Support Allowance) or expect to receive other taxable income (such as from a works pension) before the end of the tax year. You will have to wait for the P800 calculation.

What if I'm laid-off/made redundant?

You can find guidance on being laid-off and/or made redundant on GOV.UK

If you’re being made redundant, you might be eligible for certain things, including a notice period, accrued holiday pay, or redundancy pay.

We look at the tax implications of receiving redundancy pay etc. on our website.

If you are getting tax credits, please see our guidance above.

What is the job retention scheme?

On 20 March, the government instructed entertainment and hospitality premises, like bars and restaurants, to close to limit spread of the coronavirus. If you work in one of these sectors or work for another business that needs to massively scale down or close, then rather than being let go permanently, you can be ‘furloughed’ (laid off temporarily) and the new ‘Job Retention Scheme’  will help your employer pay your wages while you are not working.

The scheme will see the government paying up to 80% of a worker’s wages, via their employer’s payroll, up to a total of £2,500 per worker each month. This will be backdated to 1 March and will be initially open for 3 months, to be extended if necessary. HMRC expect to pay the first grants, via employers, within weeks.

Although the scheme is intended to support employees financially, it is the employer who has to apply for the grant. You can therefore read about the scheme in more detail in our Guidance for employers section.

It does not appear that this scheme will do much to help employees who are still able to work, but just on a much reduced basis (for example, someone whose job has been cut from 5 days a week to 2 days a week). In these circumstances, you could seek support from the benefits system to top up your income.

My PAYE coding notice is collecting tax debt from a previous year and I can’t afford to pay the debt because of my reduced income. What can I do?

HMRC have been issuing, and are continuing to issue, coding notices for the tax year 2020/21 that starts on 6 April. Some of these coding notices will collect underpayments of tax for previous tax years. It is important to check your coding notice carefully as it determines how much tax your employer must take from your pay before the rest to you. If you do not agree the figures in your coding notice, you should contact HMRC to have the relevant changes made.

Any underpaid tax from prior periods would normally be collected over 12 months if it is collected through your coding notice. In the current circumstances, it is possible that your family finances may have changed significantly so that you would find it difficult to pay that extra tax during the next tax year. If this is the case, contact HMRC without delay and ask for the debt to be collected over a longer period. The longest period that HMRC normally agree to spread debt collection over is three years. If the debt is collected over a longer period, this should mean you have more after-tax income than you would otherwise have had.

What benefits can I claim if I lose my job?

If you have been employed and you become unemployed, for example you are laid-off permanently, but you are not sick or self-isolating, you may be able to claim new-style Jobseeker's Allowance or JSA (the new name for contributory Jobseeker's Allowance). If you, or both you and your partner if you have one, have reached state pension credit age then you cannot claim JSA but may be able to claim pension credit. Like new-style ESA, there are national insurance contribution (NIC) requirements associated with new-style JSA which are alluded to in the JSA guidance on the GOV.UK website but in summary the two conditions are that:

  • You must have paid, or be treated as having paid, at least 26 weeks contributions on earnings at or above the lower earnings limit (LEL) in one of the last two complete tax years immediately before the relevant benefit year (which is usually the calendar year when you meet the entitlement conditions and submit your claim). This condition can be relaxed in certain situations.
  • You must have paid contributions or received NIC credits on earnings of at least 50 times the LEL in each of the two complete tax years immediately before the relevant benefit year.

For example: if you make your claim for benefit in 2020, it is the LEL for 2017/18 or 2018/19 which counts. The LEL for these years were £113 (2017/18) and £116 (2018/19) so to satisfy the first condition you would have had to have earned at least £2,938, over at least 26 weeks, in 2017/18 or £3,016 in 2018/19. The 26 weeks do not need to be consecutive, but weeks in which you earned less than the LEL do not count towards the total.

To satisfy the second condition you would have had to have paid contributions on earnings of £5,650 in 2017/18, and £5,800 in 2018/19. Credits wise, you would have needed to have received a Class 1 NIC credit for at least 50 weeks in each of the relevant tax years.

Neither condition requires that you have worked for the whole of the relevant two-year reference period. However, if you don't qualify for new-style JSA, you will have to rely on income-based benefits. For most people, this will be UC.

Which you claim depends on whether you have paid enough NIC to claim new-style JSA. Even if you have, you may want to claim UC in addition, to top-up your income. 

UC is gradually replacing six other benefits: working tax credit, child tax credit, housing benefit, income support, income-related employment and support allowance and income-based Jobseeker’s Allowance. The majority of people can no longer make claims to these other benefits, although there are two exceptions. Instead, if you need financial support you will need to claim UC.

You should also be aware of the following:

  • If you or your partner get or have recently received a severe disability premium in certain benefits or are classed as a ‘frontier worker’ you may be able to make a claim for one of the benefits that UC is replacing. This includes income-based JSA. See our information in the main part of our website. This is complex and you should seek advice BEFORE making any UC claim if you think this might apply to you.
  • If you are currently receiving any of the benefits UC is replacing, they will end when you make a UC claim.
  • UC takes into savings and your partner’s circumstances and income. If their income is too high, you may not qualify for any help.
  • If your partner receives contribution-based ESA – which was the old name for new-style ESA – you may be able to ask for it to be re-assessed to include an income-based element to top-up your income instead of claiming UC. If you are in this situation, you should seek advice.

The benefits system is complicated. If any of the points above apply or you are unsure, you should seek specialist welfare rights advice before making any UC claim.

General guidance on claiming benefits and in particular UC, if you lose your job can be found on our website

If you want help or advice on JSA or any other benefits, we strongly recommend you speak to a welfare rights adviser who can go through a full benefits check with you.

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