New Guidance on Salary Deductions

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There’s new guidance about deductions from pay for employees furloughed under the Coronavirus Job Retention Scheme (CJRS). What’s the full story?

Grant-funded pay Since the Coronavirus Job Retention Scheme (CJRS) began HMRC has fielded thousands of questions about whether deductions from salary are allowed to be made from scheme payments. HMRC has now amended its guidance, but is it any clearer?

Is that clear? Our view is that HMRC’s apparent clarification could be better. It says “Your employer must pay you all the grant they receive for your gross pay in the form of money. Your employer cannot enter into any transaction with you which reduces the amount you receive”, but goes on to say “Where you have authorised your employer to make deductions from your salary, these deductions can continue while you are furloughed” and “You’ll still pay Income Tax, National Insurance contributions, Student Loan repayments and any other deductions (such as pension contributions) from your wage.” What does this mean?

What is money? A key point is that when HMRC talks about money it doesn’t just mean hard cash. It also means amounts which have an immediate monetary value. For example, if you have a bill in your name for, say, £100 but someone else pays it for you, they have in effect paid “in the form of money”.

Example: Before furloughing one of your employees they were a member of your firm’s medical insurance plan. Each month you deducted an amount from their pay, being their share of the premium. Because they agreed to the deduction it can continue from their net of PAYE tax and NI CJRS payment. The same principle applies to student loan repayments and pension contributions. These types of deduction don’t affect the amount of CJRS grant you can claim. Conversely, if your employee’s salary is reduced because of a salary sacrifice arrangement, the CJRS payment is based on the reduced pay figure.

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