Coronavirus: Employees: work changes

Updated on 8 July 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. There is also some useful information on the ACAS website.

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(c) Shutterstock / Rawpixel.com

⚠️ 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:

  • your holiday entitlement
  • any pension scheme you are contributing to
  • entitlement to tax credits (to be entitled to working tax credit you need to meet certain working hours conditions. You do not have to be working to get child tax credit, but your earnings will affect the amount you get)
  • entitlement to state pension or other benefits such as Statutory Maternity Pay.

(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 £120 per week in 2020/21.)

If your employer has dropped your hours, rather than cut them completely, you won’t qualify for any assistance from the Job Retention Scheme during the period of 1 March to 30 June 2020.

In situations where employers have work for some staff but not enough work for all, it would appear to be possible to rotate employees in and out of periods of full work/furlough to help make sure that employers can treat staff equitably and employees can access some support if their hours of work are reduced (so long as each employee spends a minimum of three weeks on furlough). This might be something worth discussing with your employer.

If your employer won’t furlough you, but your wages have dropped to a level that is causing you financial difficulty, then you may want to look in to claiming help through welfare benefits, such as Universal Credit (UC). But the benefits system is complicated and we strongly recommend you contact a welfare rights adviser who will be able to go through things with you and help identify your best options.

From 1 July 2020, employers may be able to bring furloughed employees back to work for any amount of time and any shift pattern, while still being able to claim a Job Retention Scheme grant for the hours not worked.

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) until the Job Retention Scheme closes, even if you are not using the scheme*. There will be no change to your working tax credit entitlement during that period.

You do not need to tell HMRC about any temporary reduction because of the coronavirus until the Job Retention Scheme closes*.

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) until the Job Retention Scheme closes, even if you are not using the scheme*.

You do not need to tell HMRC about any temporary lay-off because of coronavirus until the Job Retention Scheme closes*.

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) until the Job Retention Scheme closes, even if you are not using the scheme*.

You do not need to tell HMRC when you are furloughed temporarily because of the coronavirus until the Job Retention Scheme closes*.

Unpaid leave: This is where you are still employed but have agreed with your employer that you will take leave that is unpaid. There will not usually be any variation to your contract.

This might apply in cases where you cannot work because you have childcare responsibilities due to coronavirus but your employer does not agree to furlough you.

Due to the current coronavirus crisis, HMRC will treat you as continuing to work your normal hours (those before the furlough) until the Job Retention Scheme closes, even if you are not using the scheme*. You do not need to tell HMRC when you are furloughed temporarily because of the coronavirus until the Job Retention Scheme closes*.

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 the coronavirus situation) until the Job Retention Scheme closes, even if you are not using the scheme*.

You do not need to tell HMRC about a temporary change in your hours because of the coronavirus until the Job Retention Scheme closes*.

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.

 


* The HMRC press announcement referred to both the Job Retention Scheme and the Self-employment Income Support Scheme (SEISS) as a reference point for tax credits to continue treating people as in qualifying remunerative work. Due to the way SEISS works, some self-employed people may claim in May and receive payment early June and so it is not clear when that scheme ‘ends’ in individual cases. For that reason, the table above refers only to the Job Retention Scheme which, at present, has a clearer end date of 31 October 2020.

Tax credits: Childcare

We are awaiting confirmation from HMRC regarding the position for WTC claimants who get help with childcare costs. Those who are in qualifying remunerative work and who continue using childcare (because they are key-workers) and therefore incurring costs can continue claiming the childcare element. If you have lost your job (been made redundant) or stopped trading as a self-employed person and no longer meet the qualifying remunerative work test for the childcare element, then you will no longer be able to claim help with childcare costs.

However, we are aware that a number of tax credit claimants are working (or treated as working their normal hours under the new tax credit rules) and unable to send their children to their usual childcare provision but they are expected to keep paying fees or to pay retainer fees. It is not clear what the position is in relation to the WTC childcare element for those people. If you are claiming help with childcare costs – you should contact the tax credits helpline for advice (be aware that lines are currently very busy) and make a note of the date, time and advisers name and the advice given. You should follow that advice until further information is published.

Tax credits: Income changes

Tax credits are based on annual household income. Up to 5 April 2020, we were in the 2019/20 tax year, and your award was either based on an estimated 2019/20 income or your 2018/19 income. During the year 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 for 2019/20 fell by more than £2,500 compared to your previous year income (in 2018/19). If the reduction in your income was less than £2,500, then there will be no change to your award for 2019/20. However, now that the new tax year has started on 6 April 2020, you should be sure to give HMRC an updated estimated income for 2020/21 so they can see if your award for 2020/21 can be adjusted. You must remember that this is about annual income and 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 (HMRC have confirmed on a government list of rules that have been relaxed to help support business they will accept the coronavirus situation as one where you were 'required' to work from home).
  • Tax exemption for homeworking costs met by the employer – see HMRC’s guidance here for more information, which has been supplemented by coronavirus-specific guidance. Note that an announcement has been made to extend this exemption where employers reimburse employees for the cost of certain office equipment, as long as certain conditions are met.
  • 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.

Further information to help employees (and employers) understand the tax implications when employees are working from home can be found in this guide which has been produced by the CIOT.

Office equipment: a warning about expense claims

We have read in the media suggestions that you can claim tax relief from HMRC using form P87 if you buy home office equipment to use while you are working from home, such as an extra computer screen or a desk and office chair. This is not correct – HMRC will not allow tax relief for these items via an expense claim and no relaxation to their position on this has been published. Please note that although there has been a recent announcement about an exemption for home office expenses, this would currently only seem to apply where they are reimbursed by an employer. This does not mean that you can now claim tax relief via the P87 process for any such costs that you have incurred yourself and not had reimbursed.

Why? You might ask. The reason is that expenses you incur in connection with your job have to meet a test to qualify for tax relief. This test is that the expense is incurred ‘wholly, exclusively and necessarily in the performance of your duties’.

The bit in bold above stops you from getting tax relief for buying a desk or chair, for example. You may have bought these items to put you in a position to do your job, or – quite literally – a better or more comfortable position to do your job. This is the subtle but important difference – whether the purchased item enables you to do your job, rather than the expense being incurred while doing your job.

Things like printer cartridges and paper are different, as these are items you use while doing the job itself. For example, your work might involve writing a letter that you need to print out and post. The cost of the ink, the paper, the envelope and the stamp are all necessarily incurred by you in doing the job. These items would normally be reimbursed by your employer, but if there were not, you could make a claim for tax relief.

I stopped working before the end of the 2019/20 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 the 2019/20 year, which ended on 5 April 2020) 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 2019/20 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. 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.

What if I stop work in the 2020/21 tax year?

If you continued to work from 6 April, but finish working for your employer completely, you might be able to ask HMRC to issue you a refund of 2020/21 tax paid by using form P50. This can be used to trigger in-year refunds, rather than having to wait until the end of the tax year.

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. In that case, you would give your P45 to the Jobcentre when you claim the benefit or give it to your new employer or pension provider. Your earnings and tax paid to date, together with your existing tax code, should then be factored into the tax taken from the new source of income.

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?

The Job Retention Scheme will help your employer pay your wages if you are unable to work during the coronavirus crisis.

Under the Job Retention Scheme, a 'furloughed' worker can receive up to 80% of their usual wages, via their employer’s payroll, up to a total of £2,500 each month.

You can read the guidance for employees on GOV.UK.

Guidance on the accrual of holiday leave and pay during furlough, can also be found on GOV.UK.

Any payments you receive under the Job Retention Scheme will be treated as normal earnings for Pay As You Earn (PAYE) tax and NIC purposes. They also count as employment income for tax credits and universal credit (UC). A breakdown of how the payments count for other welfare benefits, can be found here.

We have written many articles about various aspects of the Job Retention Scheme over the past few months, which may help offer some clarification if you have any questions about your position. They reflect our understanding of the situation as at the time of writing. You can find the date they were published under the title.

  • To qualify for the Job Retention Scheme, you need to have been notified to HMRC through your employer’s payroll submission on or before 19 March 2020. See our recent news item Extended furlough date of 19 March: but who exactly benefits? for information on exactly what this means. Please be aware that there is no obligation on employers to furlough their staff.
     
  • In the period 1 March to 30 June 2020, you should not undertake any work for your employer, including answering calls or emails. Further to our press release, employees can use this online fraud reporting facility to report employers who ask them to work while they are furloughed. The form looks quite long, but you do not need to complete all the fields and you do not have to give your details.
     
  • From 1 July 2020, employers may be able to bring furloughed employees back to work for any amount of time and any shift pattern, while still being able to claim a grant for the hours not worked ('flexible furlough'). However, employers will only be able to flexibly furlough employees that they have furloughed for a full three-week period before 30 June. This means that the final date by which an employer can furlough an employee for the first time will be 10 June, for the current three-week furlough period to be completed by 30 June.
     
  • The scheme’s guidance confirms that if your existing employment contract allows it, you can work for another employer or agency while you are on furlough. See our news piece for more on taking a new job while you are furloughed.
     
  • We have put together some specific information on how the Job Retention Scheme applies if you work through an agency or umbrella company, as we know that this is not at all clear:
  • If you work through your own limited company, whether inside or outside the public sector, see our dedicated page.
     
  • If you are a minimum wage worker, then you may find our news piece explaining how your furlough pay should be calculated useful.
     
  • You can find some information on what to do if you think your employer has paid you the wrong amount of pay during your period of furlough here. Note, that it is now possible for employers to correct underpayments and under-claims.
     
  • If you are on UC, then given all the disruption and difficulties facing employers and business since the coronavirus outbreak started, your UC award may be impacted. It is important to be aware of this so you can plan for any changes to your finances as we explain in our news piece Universal credit and furlough: what you need to know.
     
  • If you have been asked to return to the workplace, you may be wondering what happens with your benefits and taxes if your pay increases as a result of returning to work– we cover this in our news piece Returning to work after being furloughed, what to expect (note this was written before the ability for employers to 'flexible furlough' from 1 July 2020 was announced).
     

  • If you work under the Construction Industry Scheme (CIS), then you are not covered under the Job Retention Scheme and will need to apply for the Self Employed Income Support Scheme as explained in our news piece I work in the construction industry: which coronavirus scheme do I qualify for? Be aware that if you source work in the construction industry via an agency/umbrella company, you might be having PAYE deducted at source, rather than CIS, which means that you have not been treated as self-employed.
     

  • If you have been paid cash in hand for work you have done, you might still be able to claim some welfare support as we explain here.

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.

You should also keep an eye on our news feed, as we are continuing to publish articles and updates on the Job Retention Scheme.

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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