Since the publication of the third Treasury Direction on 25 June 2020 there has been some recent discussion of whether the CJRS claims can be made to cover the salaries of employees who are serving notice periods because of redundancy. The concern was caused by the introduction of additional wording in a new paragraph 2.2. This has added in what could be seen as a new provision to claiming under the scheme stating that (the highlighting is ours):
“Integral to the purpose of the CJRS is that the amounts paid to an employer pursuant to a CJRS claim are used by the employer to continue the employment of employees in respect of whom the CJRS claim is made whose employment activities have been adversely affected by the coronavirus and coronavirus diseases or the measures taken to prevent or limit its further transmission.”
This has led to suggestions that a claim should only be made where the payment will be used to continue employment. If this is correct, it may not be consistent with the purpose of the scheme to seek reimbursement in respect of those employees who are working under notice.
The published guidance for employees who have been furloughed continues to state that employees can be made redundant while on furlough or afterwards and guidance for employers still makes reference to employees’ redundancy rights continuing to apply while they are furloughed.
The meaning of “to continue employment”
However, the Treasury Direction amendment to say that “integral to the purpose” of the scheme is that the grant is used by the employer “to continue the employment of employees” has caused concerns as the Direction now arguably contradicts the guidance and previous Treasury Directions. Employees are of course still in employment during notice periods but a possible interpretation of the new wording is that employers should only use the scheme for as long as they are trying to keep jobs open and should stop using the scheme once they have given notice of redundancies.
The HMRC customer helpline is reportedly confirming claims from the fund can be made for notice periods but this is a verbal and not a legally binding view and there is no written confirmation.
The risk of scrutiny of a claim will be increased if an employer has served notice of redundancies immediately after placing employees on furlough. The underlying purpose of the Coronavirus Job Retention Scheme is to allow employers to maintain their workforce, so there is some risk that HMRC will question a quick move to redundancy if it looks like the employer’s intention was to make redundancies at the outset and has just been using the CJRS scheme to fund the notice period. However, we can see arguments that the reference to using the grant to “continue the employment of employees” does not refer to specific employees and it can be argued that, by using the scheme to contribute to the notice pay of some employees, you can avoid having to make deeper cuts elsewhere.
So whilst we think that you can claim under the scheme it is worth assessing the circumstances of the redundancies. If you are not prepared to take the risk and want to return payments this is possible under the scheme. It would be wise to bear in mind the likely penalties regime when making this decision.
Under draft legislation issued on 29 May (which are planned to be incorporated into the Finance Bill due to be enacted this month) HMRC will have the power to raise income tax assessments to recover CJRS payments from employers who were not entitled to the payments, or where the payments have not been used to pay furloughed employee costs (giving HMRC power to make a company officer jointly and severally liable where the officer has deliberately made a claim to which the company was not entitled). HMRC will also be able to charge penalties in cases of deliberate non-compliance or where a person who has claimed a CJRS payment deliberately does not use it for the costs it was intended to reimburse. At present it is suggested that the normal 30 day period for self reporting is extended to 90 days for the purpose of the legislation due to the complexities of the scheme. It may be sensible to review the position on claims within the 30/90 day period in light of whatever the latest guidance is at that stage to avoid possible penalties.