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law
Sections 71 and 76 of the Coronavirus Act 2020 provide the Treasury with the power to direct HMRC’s functions in relation to coronavirus.
Under these powers, the Treasury introduced The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Direction, on 15 April 2020, (the “CJRS Direction”) to govern HMRC’s administration of the CJRS. This first CJRS Direction was followed up with a number of further directions as the pandemic progressed and changes were made. However, from a substantive perspective, the relevant parts of the CJRS Direction did not change during the course of the fact pattern in this dispute and therefore we focus on the first CJRS Direction.
Under paragraph 3 of the CJRS Direction, an employer could make a claim for support payments under CJRS if they had a PAYE scheme registered on HMRC’s Real Time Information (RTI) system for PAYE by 19 March 2020. This is described as a qualifying employer.
Paragraph 5 of the CJRS Direction deals with the qualifying costs that can be claimed:
The costs of employment in respect of which an employer may make a claim for payment under CJRS are costs which-
relate to an employee-
to whom the employer made a payment of earnings in the tax year 2019-20 which is shown in a return under Schedule A1 to the PAYE Regulations that is made on or before a day that is a relevant CJRS day,
in relation to whom the employer has not reported a date of cessation of employment on or before that date, and
who is a furloughed employee (see paragraph 6), and
meet the relevant conditions in paragraphs 7.1 to 7.15 in relation to the furloughed employee.
Paragraph 6 of the CJRS Direction defines who are furloughed employees.
Paragraph 7 of the CJRS Direction is entitled “Qualifying costs - further conditions”. The core relevant parts in this appeal are:
paragraph 7.1, which reads as follows:
“7.1 Costs of employment meet the conditions in this paragraph if-
(a) they relate to the payment of earnings to an employee during a period in which the employee is furloughed, and
(b) the employee is being paid-
(i) £2500 or more per month (or, if the employee is paid daily or on some other periodic basis, the appropriate pro-rata), or
(ii) where the employee is being paid less than the amounts set out in paragraph 7.1(b)(i), the employee is being paid an amount equal to at least 80% of the employee’s reference salary.”
Paragraph 7.2 which deals with the reference salary, but only of those who are not fixed rate employees:
Except in relation to a fixed rate employee, the reference salary of an employee or a person treated as an employee for the purposes of CJRS by virtue of paragraph 13.3(a) (member of a limited liability partnership) is the greater of-
the average monthly (or daily or other appropriate pro-rata) amount paid to the employee for the period comprising the tax year 2019-20 (or, if less, the period of employment) before the period of furlough began, and
the actual amount paid to the employee in the corresponding calendar period in the previous year.
A fixed rate employee is defined in paragraph 7.6 of the CJRS Direction:
A person is a fixed rate employee if-
the person is an employee or treated as an employee for the purposes of CJRS by virtue of paragraph 13.3(a) (member of a limited liability partnership),
the person is entitled under their contract to be paid an annual salary,
the person is entitled under their contract to be paid that salary in respect of a number of hours in a year whether those hours are specified in or ascertained in accordance with their contract (“the basic hours”),
the person is not entitled under their contract to a payment in respect of the basic hours other than an annual salary,
the person is entitled under their contract to be paid, where practicable and regardless of the number of hours actually worked in a particular week or month in equal weekly, multiple of weeks or monthly instalments (“the salary period”), and
the basic hours worked in a salary period do not normally vary according to business, economic or agricultural seasonal considerations.
Paragraph 7.7 of the CJRS Direction provides that “the reference salary of a fixed rate employee is the amount payable to the employee in the latest salary period ending on or before 19 March 2020”.
Paragraph 8.1 sets out the expenditure of employers that will be reimbursed by the government under the CJRS.
Where a CJRS claim is made incorrectly, the recipient of the CJRS payments is liable to income tax on the excess under paragraph 8 of Schedule 16 to Finance Act 2020.
Paragraph 9 of the same Schedule gives HMRC the power to make assessments to income tax for amounts chargeable under paragraph 8.