Furlough and tax: Is the Government taxing Furlough income?

Thousands of workers across the country have been told their jobs are contingent on the Government’s Job Retention Scheme as the coronavirus crisis causes disruption to businesses. Furlough income allows workers to receive 80 percent of their monthly salary rather than be laid off by their employers. But is the Government taxing furlough income?

The coronavirus outbreak has hit many industries hard with the forced closures of several businesses and the order for people to remain in their homes.

Chancellor of the Exchequer Rishi Sunak announced a £350billion bailout package for businesses, families and individuals affected by the coronavirus crisis.

The “unprecedented measures for unprecedented times” would involve offering all UK employers with a pay as you earn scheme the chance to pay their workforce 80 percent of an employee’s usual wage, to safeguard workers from being made redundant.


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What does furlough mean?

According to the Government, furlough is when an employee remains in employment, but is not undertaking work.

Essentially, to furlough a worker means that employee is laid off or suspended temporarily, usually without pay.

Furloughed workers are still technically employed with their employer, but furlough pay means they cease working for that company or individual and do not earn a salary.

The concept of furlough is a temporary arrangement, which intends to see workers one day return to their jobs.

What is the UK furlough scheme?

Mr Sunak revealed the Government plans to cover 80 percent of a furloughed employee’s salary in a bid to avoid mass redundancies and encourage firms to put jobs on hold during the coronavirus disruption.

This especially regards workers who are unable to work due to coronavirus because their places of work have been forced to shut down.

Furloughed workers are not those who have been made redundant.


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Under the new scheme, all UK companies with a PAYE scheme created and started on or before February 28, 2020, will be entitled to seek governmental support.

The scheme applies to all workers, including those who have been asked to stop working, but are being kept on the payroll.

HM Revenue and Customs will pay employers a grant worth 80 percent of a worker’s usual wage, up to £2,500 a month.

The Coronavirus Job Retention Scheme will cover all wages from March 1 for three months initially, but this may potentially be extended if necessary.

The Department for Business, Energy and Industrial Strategy said: “To qualify for this scheme, you should not undertake work for them while you are furloughed.

“This will allow your employer to claim a grant of up to 80 percent of your wage for all employment costs, up to a cap of £2,500 per month.

“You will remain employed while furloughed.

“Your employer could choose to fund the differences between this payment and your salary, but does not have to.

“If your salary is reduced as a result of these changes, you may be eligible for support through the welfare system, including Universal Credit.

“We intend for the Coronavirus Job Retention Scheme to run for at least 3 months from 1 March 2020, but will extend if necessary.”

Is furlough income subject to taxation?

Yes, furlough pay is similar to gardening leave.

You are still paid by your employer and will still pay taxes on your income.

The HMRC will pay employers a grant worth 80 percent of an employee’s usual wage, up to £2,500 after associated National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage.

Employers are allowed to top up pay levels if they can and want, but are not able to claim more than 80 percent of £3,125, which is equivalent to a gross salary of £2,500.

The Government’s guidance reads: “To be eligible for the subsidy, when on furlough, an employee can not undertake work for or on behalf of the organisation.

“This includes providing services or generating revenue.

“While on furlough, the employee’s wage will be subject to usual income tax and other deductions.”

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