‘I’m furloughed and I’ve been overpaid. Do I need to pay the money back?’
Under the Coronavirus Job Retention Scheme, employers can keep staff on the payroll even if they can’t work due to the pandemic and the government currently pays 80% of wages up to a monthly maximum of £2,500.
Since being introduced in March, furloughed workers may have seen mistakes on their payslips or even been notified by their employer that an error in pay or tax has occurred. YourMoney.com has seen examples of mistakes being made.
Kay Ingram, director of public policy at independent financial advisory group, LEBC, said the furlough scheme “presents a number of challenges for employers and their payroll”.
She said: “That is likely to become more complex once the scheme starts to change again from August with a gradual phasing down of the government grant and the ability of employees to be at work for some of the time while on furlough.”
Ingram added that most people on furlough would not be working elsewhere, so would expect to receive less pay than usual, so their tax liability should also fall.
“As an example, someone who is normally paid £2,000 per month gross, should see their furlough pay fall to £1,600 per month (assuming the employer isn’t topping up the amount).
“But if the employer has overpaid the member of staff by not adjusting the pay correctly, the employer will claw back the overpayment,” Ingram said.
She advised furloughed workers to query the figure with their payroll in the first instance.
Recovery of overpayments
If an overpayment has been made, Matthew Brown, Chartered Institute of Taxation’s technical officer, said the employer “needs to consider the employee’s employment contract and employment rights”.
Brown said: “Normally an employer can recover overpayments of earnings from employees via deduction from future salary payments so long as this is agreed in advance with the employee.”
He added that where an overpayment of salary leads to an overpayment of the CJRS grant being received, the employer must notify HMRC of this error.
Brown said there’s also the question of whether the correct tax deductions have been made.
“If the right amount of gross furlough pay was paid then the right amount of tax, employee’s NICs, student loan deductions, auto-enrolment pension contributions etc will have been deducted, unless the PAYE tax code or NIC identifier was incorrect.
“If the tax code was incorrect, the employee has to ask HMRC to amend the code – the employer cannot unilaterally change a tax code issued by HMRC, they must wait for HMRC to notify the new (correct) tax code. Once the correct code is operating, any over or under deduction of tax will be corrected via deductions from future wage payments.”
He added that where the wrong amount of gross furlough pay was paid then the tax deductions will be ‘wrong’ too, though are likely to be ‘correct’ in relation to what was paid.
Brown explained: “The income tax under PAYE will ‘auto-correct’ (assuming the tax code is correct) when the relevant corrections are made in the following pay periods (assuming the corrections are made in the same tax year).
“For most employees the NICs, Student Loans, Pension Contributions will also balance out when these corrections are processed in subsequent pay periods. But for some employees there could be an over or under deduction/collection of employee’s Class 1 NIC, student loan deductions and pension contributions where the difference between the pay that should have been received and the pay that was received causes an employee to move above or below the relevant threshold for those deductions.”
‘A defence is possible’
Stephen Moore, partner and head of employment at Ashfords, said where an employer makes a mistake and over-claims through the CJRS, they are able to claim for a lesser amount as part of their next claim.
However, he warned: “If employers don’t inform HMRC, there is a risk that these claims will be retrospectively audited and employers will not only have to pay back these sums, but may be subject to penalties and even criminal sanctions. Employers should ensure transparency and inform HMRC as soon as possible if an error is noticed.
“Employees should inform their employer if they see anything that doesn’t look right. Suspected fraudulent use of the CJRS can also be reported online.”
He added that many employers might not be aware at this stage that errors are being made and it might be some time before these claims are retrospectively reviewed and mistakes highlighted.
However, where an employee sees an overpayment, he said: “Typically, any deductions to wages must be done with an employee’s agreement to avoid a claim for unlawful deduction of wages or breach of contract.
“But s14 Employment Rights Act 1996 allows employers to make deductions from an employee’s future wages to recover overpayments, which could be used if employers discover they have made an error and over-claimed in a CJRS application.
“A defence is possible, however, if an employee can prove that they understood they were entitled to the payment and in good faith relied upon this money. Employees should be careful to check whether their contract makes reference to the ability of an employer to make deductions to their wages, and what their furlough agreement says in relation to their wages during this period.”