Furlough scheme: Do you pay tax and National Insurance on furlough?

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The Coronavirus Job Retention Scheme was introduced in March in response to the first national lockdown. The scheme allowed employers to furlough employees, and the Government would pay 80 percent of employee wages capped at £2,500 per month. The scheme has recently been extended, as it was due to end on October 31, 2020.

In light of ongoing lockdown restrictions, the Coronavirus Job Retention Scheme will be extended until March 31, 2021.

However, the furlough scheme will be subject to review by the Government in January 2021.

After the extension of the furlough scheme was announced, Chancellor Rishi Sunak said the changes will provide a “vital safety net” for people over the next few months.

Mr Sunak said in a statement: “Over the past eight months of this crisis we have helped millions of people to continue to provide for their families.

“But now – along with many other countries around the world – we face a tough winter ahead.

“I have always said that we will do whatever it takes as the situation evolves.

“Now, as restrictions get tougher, we are taking steps to provide further financial support to protect jobs and businesses.

“These changes will provide a vital safety net for people across the UK.”

Do you pay tax and National Insurance on furlough?

The Coronavirus Job Retention Scheme was in place from March to October 2020, but the amount of Government support decreased in recent months.

From August, the Government no longer contributed National Insurance or pension contributions on behalf of employers.

Although the Government will once again cover 80 percent of employee wages under the scheme’s extension, employers will still have to pay National Insurance and pension contributions over the coming months.

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The Government website explains: “For the period November 1, 2020 to January 31, 2021, the government grant will revert to the full 80 percent of wages, employers will not be required to contribute or top-up for the hours not worked but will still not be able to claim for employer National Insurance contributions or employer pension contributions.

“You’ll still need to pay the employer National Insurance and pension contributions on your furloughed employees’ pay.

“For claims ending on or before July 31, 2020 you can claim for these costs too.”

Employees who have been put on furlough will still have to pay National Insurance and tax on their salary as usual.

Employees will have to pay Income Tax, National Insurance contributions, as well as any Student Loan repayments and pension contributions.

As an employee, your employer will have to pay you at least 80 percent of your regular wages if you are placed on furlough.

The amount you are paid is capped at £2,500 a month for the hours you are not working.

If you have been flexibly furloughed, your employer has to pay you your full wage for hours you do work.

Your employer can decide to top-up your wages on the 80 percent fulfilled by the Government for hours not worked, but this is not compulsory.

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