The Coronavirus Job Retention Scheme (CJRS) provided funding for employers who furloughed their employees, rather than making them redundant, when businesses were effectively forced to shut down as a result of the March 2020 lockdown.
Furlough was an entirely new concept in employment and the CJRS had no previous precedent. Employers were under a great deal of pressure to keep both the business and the workforce intact.
The CJRS was a lifeline in the circumstances but behind the headlines were complicated rules about which employees would qualify for the wage subsidy.
In Carlick Contract Furniture Limited v HMRC the issue was whether employees who had been employed, but had not yet been paid, were properly included. It is one of the first tribunal decisions to consider the clawback of payments made to employers in respect of furloughed employees who had started shortly before the furlough scheme was introduced.
As per the case, on the 18 and 19 February 2020 offers of employment had been made for two employees to start work on 24 February 2020. This was prior to any announcements about a lockdown or the CJRS.
Both employees were to be paid monthly on or about the 26th day of each month. As the employer’s payroll was prepared three days in advance the start dates for the two meant that they missed the payroll run for February by just one day.
They were told that they would be included in the payroll run for the following month and receive their first pay on 26 March 2020.
Prior to them getting to payday lockdown was announced and the furlough introduced. The two employees were clearly on the employer’s ‘books’ as at the start of the furlough scheme and they were included in the employer’s claims for wage costs for the following seven months.
However, following a later audit, HMRC disputed that the wages for these employees should have been included in the applications for payment. The employer having received a notice that it was to repay the sums received which were in excess of £20k appealed the determination.
While guidance was provided through HMRC publications, the legal basis for CJRS claims was set out in the Treasury Directions.
The first two of these Treasury Directions provided that for wage payments to qualify under the CJRS the payment of earnings to that employee must have been included in an RTI PAYE submission made to HMRC not later than 19 March 2020.
HMRC had correctly identified that neither of these employees had been included on payroll until 26 March 2020.
The subsequent Treasury Directions provided that an employer could only claim for wages in respect of employees claimed for under the earlier Directions. While the two employees had been included in the earlier claims it was held that the reference in the Direction could only mean valid earlier claims.
It followed that they had been wrongly included in claims throughout the seven-month period.
The case reminds us of the very real problems that employers and employees faced as at the start of the first Covid-19 lockdown. The CJRS was a welcome intervention but the detail behind the scheme had the capacity to catch out the unwary.
This decision shows that even where employers had acted in the spirit of the legislation by avoiding redundancies, there is a risk that some employees may have been wrongly included in claims due to the date they were first included on payroll returns.
That could lead now to repayments needing to be made to HMRC. In some cases where the claims were ongoing over a period of months the amounts involved could be substantial. This is likely a concern for many employers who find that these historic claims may now be under scrutiny in an audit.
Benedict Gorner is an employment partner at Gateley Legal