£1,000 Coronavirus Job Retention Bonus will be taxed
Earlier this month as part of the chancellor’s ‘mini budget’, Rishi Sunak announced a Job Retention Bonus of £1,000 to UK employers for every eligible furloughed employee who remains continuously employed until the end of January 2021.
It came as the government aims to minimise redundancies as grants for furloughed staff come to an end in October.
Today, the government issued further details of the scheme.
The one-off £1,000 bonus will be taxable “so the business must include the whole amount as income when calculating their taxable profits for Corporation Tax or Self-Assessment”, the guidance states.
It will also be available to eligible company directors, agency workers, including those employed by umbrella companies and office holders.
We already knew that in order to be eligible, employees must earn above the lower earnings limit (£520 per month) on average between the end of the Coronavirus Job Retention Scheme (31 October 2020) and the end of January 2021.
The government also confirmed that an employer will be able to claim the Job Retention Bonus for any employees that were eligible for the Coronavirus Job Retention Scheme and they have claimed a grant for.
However, “where a claim for an employee was incorrectly made, a Job Retention Bonus will not be payable”, it stated.
The guidance notes read: “Employers must keep their payroll up-to-date and accurate and address all requests from HMRC to provide missing employee data in respect of historic Coronavirus Job Retention Scheme claims. Failure to maintain accurate records may jeopardise an employer’s claim.
“HMRC will withhold payment of the Job Retention Bonus where it believes there is a risk that Coronavirus Job Retention Scheme claims may have been fraudulently claimed or inflated, until the enquiry is completed.”
Further, the bonus won’t be available to any employee serving a contractual or statutory notice period that started before 1 February 2021.
Bonus payments will be made from February 2021.
‘Bonus isn’t a key factor for employers’
Kay Ingram, director of public policy at LEBC, said: “The fact the bonus is taxable is not a surprise as that is consistent with the Coronavirus Job Retention Scheme grants covering 80% of employees’ wages and the Self-employment Income Support Scheme.
“However, whether any tax is payable on the bonus will depend upon whether the employer makes a taxable profit over the year or not.
“The bonus may not be a key factor in determining whether an employee is retained or not in the long-term. The progress of the scientific fight against the virus will probably be more important in determining whether jobs remain open or not.
“Employers could use the bonus to fund employee financial well-being advice to help those furloughed and for whom the future is uncertain to achieve some financial resilience ahead of what may be a deep recession. Employers can fund this up to £500 per year per employee as a tax-free benefit.”
‘Concerns the bonus won’t be enough to support employers’
Stephen Moore, partner at Ashfords, said the government’s Job Retention Bonus scheme will provide more of an incentive to retain lower paid employees, as the bonus is paid regardless of salary. For higher paid employees, the bonus will cover just a small fraction of wages.
Moore said: “There is no requirement that the bonus be paid directly to employees, which is beneficial to employers for providing flexibility to consider the needs of the business and where the payment is needed most, although many employers will use the bonus to help pay wages.
“HMRC has specified that incorrect or fraudulent claims under the CJRS will result in the bonus not being paid. The speed with which the CJRS was implemented means there will still be some time before claims are retrospectively audited and this could have a detrimental effect on bonus payments.
“The bonus acts as a welcome payment and shows the government’s efforts to attempt to retain jobs, but there are concerns this won’t be enough to support employers unable to last the stretch from October when the CJRS ends, until February when bonus payments are paid from. There is also the risk that an employer could make an employee redundant shortly after utilising the bonus.”