Budget update: Furlough extended to September 2021
What do the terms of the extended furlough scheme include and what cut-off dates to keep in mind?
In his much anticipated Spring Budget announcement on 3 March 2021, the Chancellor Rishi Sunak, has confirmed that the Coronavirus Job Support Scheme (‘furlough’) will be further extended to 30 September 2021.
Launched at the start of the first national lockdown, back in March 2020, this the fourth time that the proposed closure date of the scheme has been pushed back to allow for the continuing economic challenges posed by COVID-19.
The terms of the furlough scheme will remain the same up to the end of 30 June 2021. This means that the Government will continue to pay 80% of furloughed employees’ salaries for any hours not worked, up to maximum of £2,500 per month.
As currently, employers will be required to pay wages in full, as well as NICs and pension contributions for any hours the employee has worked, and must fund NICs and pension contributions for any hours the employee does not work.
From 1 July 2021, the level of grant will be reduced, and employers will be asked to contribute towards the costs of furloughed employees’ wages for their non-worked hours. The Government contribution to employee wages will be tapered down as follows:
- In July, the Government will fund 70% of employee wage costs for hours not worked, up to a cap of £2,187.50 per month. Employers must fund 10% of the cost of hours not worked, up to a cap of £312.50.
- In August and September, the Government will fund 60% of employee wage costs for hours not worked, up to a cap of £1875.00 per month. Employers must fund 20% of the cost of hours not worked, up to a cap of £625.00.
- Employers are expected to fund NICs and pension contributions for any hours not worked, for the whole of the 3-month period July-September 2021.
Throughout this whole period, the furlough scheme will remain flexible. Employers can furlough employees for any amount of time and any work pattern, while still being able to claim the grant for any hours not worked.
It is important to note the relevant cut-off dates to claim for individual employees:
- All claims for furlough days in February 2021 must be claimed for by 15 March, otherwise the right to claim will be lost.
- For periods ending on or before 30 April 2021 employers may claim for employees who were employed on 30 October 2020 (as long as a PAYE submission was made in relation to that employee between the start of the furlough scheme and 30 October 2020).
- For periods ending on or after 1 May 2021 employers may claim for employees who were employed on 2 March 2021 (as long as a PAYE submission was made in relation to that employee between the start of the furlough scheme and 2 March 2021)
Government guidance makes clear that it is not necessary to have furloughed an employee previously to make use of the extended scheme. Employers can continue to furlough individual employees for the first time until the scheme closes, as long as each employee was on payroll at the relevant start-date.
Tax and pay changes
There are also a number of tax and pay changes to note from the March 2021 Budget announcement. Most importantly:
- There will be no increase in income tax rates. The Personal Allowance will increase to £12,570, the basic rate limit to £37,700 and higher rate threshold to £50,270 in 2021/2022 but will then be frozen until April 2026.The additional rate will remain at £150,000.
- The NIC threshold (for both employed and self-employed) will be increased to £9,568 for 2021/22.
- National Living Wage – to be increased from £8.72 to £8.91 per hour from April 2021.
- 100% business rates relief for small businesses in the retail, leisure and hospitality sectors to be extended for a further 3 months (until end of June 2021) and thereafter discounted by 2/3 for rest of year.
The continued availability of furlough until 30 September 2021 will be a welcome reprieve for many UK employers. Prior to the Budget announcement, it was rumoured that the scheme might be extended beyond its 30 April end-date through to the end of June, to coincide with the proposed lifting of social restrictions in England.
However, in providing an extra three months of support, the Government appears to recognise that recovery in some sectors may be slow and difficult. For employers in hospitality and retail for example, this additional breathing space may be invaluable, allowing time for customer confidence and footfall to build in the immediate post-restriction period.
The reintroduction of tapering in the period July-September, many be an indication that this will be the final extension of the furlough scheme, and that employers can expect support to finally come to an end on 30 September 2021. However, as the past 12 months have shown, it is unwise to be definitive.
This time, employers have been given a full six-months’ notice of the proposed ending of the scheme, indicating that the Government has taken heed of appeals from business to help them effectively plan for the future. Hopefully, as far as COVID circumstances allow, this pattern will continue, and if there are to be any changes to the current furlough road-map, these will be flagged to UK employers well in advance.
Notably, the Government promised that any announcement of the withdrawal of support would come in time to allow businesses to plan for a 45-day minimum redundancy consultation period, and many employers will be relieved that this promise has been kept. However, it is important to bear in mind that employee notice periods can no longer be funded through the furlough scheme. While the grant can be claimed during periods of redundancy consultation, employers must stop claiming once notice of redundancy has been given.
If you need any support with business planning for the new, extended end to the furlough scheme, please do not hesitate to contact our employment law solicitors.