TC09633 - [2025] UKFTT 01096 (TC)

There was no apparent difference between the Appellant and HMRC as to the underlying legal position, so we have stated it fairly briefly as follows.

HMRC accepted that the Appellant was eligible to make CJRS claims but contended that the calculations for the claims made to CJRS by the Appellant were wrong and gave rise to an overpayment of CJRS.

The costs of employment in respect of which a claim may be made is set out in Paragraph 5 of the Coronavirus Direction. These are costs which relate to an employee:

“(i)

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,

(ii)

in relation to whom the employer has not reported a date of cessation of employment on or before that date, and

(iii)

who is a furloughed employee (see paragraph 6) and meet the conditions in paragraphs 7.1 to 7.15”

A “relevant day” is defined by paragraph 13.1 of the Coronavirus Direction as 28 February or 19 March 2020. Paragraph 5 of the Coronavirus Direction refers to Schedule A1 to the PAYE Regulations. Paragraph 67B of the PAYE Regulations states that “on or before making a relevant payment to an employee, a Real Time Information employer must deliver to HMRC the information specified in Schedule A1 in accordance with this regulation”. The Appellant accepted that the relevant day for it was 19 March 2020.

Schedule A1 details what information regarding payments to employees must be given to HMRC. This information includes the date of the payment made and the employee’s pay frequency.

Paragraph 6 of the Coronavirus Direction defines a furloughed employee as follows:

“(a)

The employee has been instructed by the employer to cease all work in relation to their employment, (b) The period for which the employee has ceased (or will have ceased) all work for the employer is 21 calendar days or more, and (c) The instruction is given by reason of circumstances arising as a result of coronavirus or coronavirus disease.”

Paragraph 8 of the Coronavirus Directions sets out what expenditure can be reimbursed through a CJRS claim and makes reference to an employee’s “reference salary” and refers to paragraphs 7.1 to 7.15 of the Coronavirus Direction.

Paragraph 7 of the Coronavirus Direction explains qualifying costs and at paragraph 7.2 states:

“Except in relation to a fixed rate employee, the reference salary of an employee or a person treated as an employee for the purpose of CJRS by virtue of paragraph 13.3 (a) (member of a limited liability partnership) is the greater of (a) The average monthly (or daily or other appropriate pro-rata) amount paid to the employee for the period comprising the tax year 2019-2020 (or if less, the period of employment) before the period of furlough began, and (b) The actual amount paid to the employee in the corresponding calendar period in the previous year.”

These two methods are known colloquially as the average and the lookback method respectively.

Paragraph 7.3 of the Coronavirus Direction states that:

“In calculating the employee’s reference salary for the purposes of paragraphs 7.2 and 7.7, no account is to be taken of anything which is not regular salary or wages.”

Paragraph 7.4 defines “regular salaries or wages” as so much of the salary or wages as (a) cannot vary according to any of the relevant matters described in paragraph 7.5 except where the variation in the amount arises as described in paragraph 7.4(d), (b) is not conditional on any matter, (c) is not a benefit of any other kind, and (d) arises from a legally enforceable agreement, understanding, scheme, transaction or series of transactions.”

Accordingly, an employee’s “reference salary” should be calculated with reference to one of two tests set out in the Coronavirus Directions depending on whether the employee is a fixed rate employee or not. For an employee who is not a fixed rate employee, either the average or the lookback method should be used. A fixed rate employee is defined in paragraph 7.6 of the Coronavirus Direction as follows: “A person is a fixed rate employee if (a) 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), (b) the person is entitled under their contract to be paid an annual salary, (c) 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”), (d) the person is not entitled under their contract to a payment in respect of the basic hours other than an annual salary, (e) 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 (f) 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 Coronavirus Direction goes on to provide 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 the 19 March 2020 (but disregarding anything which is not regular salary or wages as described in paragraph 7.3).

Accordingly, if the claim is made in respect of a fixed-rate employee, the qualifying costs on which CV Support Payments are based are determined by the earnings shown on an RTI return which is made on or before a day that is a relevant CJRS day (which the Appellant accepted for it was 19 March 2020).

It will be readily apparent that if a fixed rate employee’s salary was increased in early 2020, the effect of the Coronavirus Direction is to produce a very different result depending on whether the increase is shown in the employer’s monthly RTI before, or after, 19 March 2020. If it was before, the reference salary would be the increased salary; if after, the reference salary would be the lower salary. For an employer in the position of the Appellant, which had given salary increases on 1 March which would show up on an RTI after 19 March 2020, the effect of the Coronavirus Direction was to produce an unfortunate result.

It was accepted by the Appellant that certain of its employees in respect of whom claims for CV Support Payments had been made were fixed rate employees and certain were not.

By a direction (the Seventh CJRS Direction) made on 15 April 2021 the Coronavirus Support Scheme was extended to employees in respect of whom payments were reported to HMRC on an RTI return after 19 March 2020 and before 3 March 2021 (paragraph 6.2 of that direction).