TC09642 - [2025] UKFTT 01116 (TC)

Since Assessments 2 and 3 were both duplicate assessments covering the same period as Assessments 1 and 4, we exercise our power to amend these assessments to nil in accordance with section 50(8) of the Taxes Management Act 1970.

The remainder of this decision therefore deals with Assessments 1 and 4.

As noted above, there is no dispute that CSEL was a qualifying employer and that the five employees were furloughed employees. This dispute primarily centres on what the appropriate qualifying costs were for those employees.

Considering first whether the five employees were fixed rate employees. The full text of paragraph 7.6 of the CJRS Direction is set out above. Applying those sections to the five employees in question:

As a result, we find that the five employees were not fixed rate employees. The fact that there was an agreed day rate for when they did obtain work is not enough to meet the requirements under paragraph 7.6 of the CJRS Direction to be treated as fixed rate employees.

Therefore the qualifying costs for these employees must be based on their reference salary in accordance with paragraph 7.2 of the CJRS Direction.

The claims made were all based on the monthly salary that was paid to the five employees for the month of March 2020. It is clear that this was not the correct reference salary since that is neither an average salary or a corresponding month salary.

The next question to be answered then, is what the appropriate reference salary should have been.

There was some confusion at the hearing concerning the relevance of 19 March 2020 in relation to non-fixed rate employees, with HMRC asserting that it remained a relevant date. This is why written submissions were requested.

In HMRC’s written submissions they accepted that it was not relevant to calculating reference salary for non fixed-rate employees.

The reference salary must be calculated by applying paragraph 7.2 of the CJRS Direction, under which it is the greater of:

We will refer to limb a as the averaging method and limb b as the lookback method.

There is no dispute here about the use of the lookback method. However, the parties disagree about the extent to which the payments made to the employees in respect of the new contract in March 2020 can be taken into account in the averaging method.

HMRC argue that the wording of the averaging method prevents them from taking into account any of that period because it was only paid to the employees on 31 March 2020. They place reliance on the use of the phrase “amount paid” and argue that this must have been paid “before the period of furlough began”. They say that because the CJRS Direction refers only to amounts paid and not to amounts earned, it must mean only those amounts that are paid before the furlough period began.

CSEL argues that the period from the start of the contract until they were furloughed should be taken into account. They say that this pay related to work done prior to the COVID-19 restrictions came into play and pursuant to arrangements with their staff and contracts with third parties that were agreed long before that.

The letters sent in January 2020 and invoices and correspondence with the third party contractors are clear evidence that the new contract was established before the CJRS was announced (and HMRC did not dispute that). However, the question is whether the wording of paragraph 7.2 allows those payments to be taken into account.

This is a question of statutory interpretation. The key is whether the word “paid” is linked to the phrase “before the period of furlough began”.

We note that it does not refer to amounts paid “in” any given period, but rather refers to amounts paid “for” a period. In our view this intends to capture the amounts of remuneration actually paid to the employee in respect of the period in question, whenever they are in fact paid.

It then goes on to identify what the period comprises. The remainder of the sentence (leaving aside the parentheses for the moment) is: “the tax year 2019-20 before the period of furlough began”. Other than the parentheses, there is no punctuation in the sentence at all, which might indicate an intention to sever one part from the other.

Therefore in terms of plain language, the relevant period is the period from 6 April 2019 to the day before the furlough began. In this case that would be 6 April 2019 to 22 March 2020.

This is supported by how this would apply in other fact patterns:

We also do not consider that this creates an absurdity. This is one part of the calculation which is intended to capture an appropriate salary to create an average from over a reasonably long period. For some, who started employment not long before COVID-19 restrictions applied, this period would be relatively short, but for others this would capture the whole tax year. As has been said in other cases concerning CJRS, these directions were drafted extremely quickly and were intended to support employers but could not realistically have catered for every possible circumstance. However, that does not alter the words of the statute, which do not limit the reference salary to amounts that were paid prior to the reference date of 19 March 2020 nor to the date before furlough.

We also note that, included in the bundle and referred to in Officer Davies witness statement, is a piece of HMRC guidance entitled “Work out 80% of your employee’s wages”. This includes guidance and examples for employers on how HMRC suggest that calculations should be done. Under the heading “Employees whose pay varies and were employed from 6 April 2019”, guidance is given for how to work out using the averaging method:

“To work out 80% of the average monthly wages for the last tax year:

1.

Start with the amount they earned in the tax year up to the day before they were furloughed.

2.

Divide it by the number of days from the start of the tax year – including non-working days (up to the day before they were furloughed, or 5 April 2020 – whichever is earlier)

3.

Multiply by the number of furlough days in this pay period.

4.

Multiply by 80%.”

The guidance then goes on to give an example of a worker and refers to what the worker earned in the period up to the day they were placed on furlough and does not make any reference to when they were paid. It goes on to calculate the average based on the number of days in the tax year up to that point, with again no reference to when the person was paid.

For this reason, we have concluded that the reference pay under the averaging method should include all pay in respect of the period up to the date of the furlough, i.e. 22 March 2020, even though it was not paid until 31 March 2020.

In the assessment figures defended by HMRC, they agreed that for each CJRS claim, they had applied the most favourable amount for CESL, i.e. if the lookback method produced a higher claim, then this was used, whereas if the averaging method produced a higher claim, then this method was used for the given month. Broadly speaking this meant that if the workers had been on a job in the relevant month in 2019-2020 then the lookback method was used, but if not, then the averaging method was used.

The effect of the conclusion above is that the amounts used in calculating the averaging method were too low, because they did not include the higher salary paid for the period from the start of the holiday parks contract work until 22 March 2020.

We do not have calculations that exactly match that outcome and therefore direct the parties to agree the reduction to the Assessments that will be necessary in order to reflect the change to calculating the average.

In relation to the remaining arguments raised by CESL, we find as follows:

For the reasons set out above, we:

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.