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What is Furlough?

Furlough is when employees are kept on payroll but aren't working, often during temporary business closures. The CJRS scheme during COVID covered furlough costs.

Current Rate (2025/26)

N/A - CJRS ended September 2021

Example

During COVID, many employees were furloughed with 80% of salary paid by the government.

Key Dates

CJRS ended 30 September 2021

How Furlough Works in Practice

Furlough became a widely known term during the COVID-19 pandemic when the UK government introduced the Coronavirus Job Retention Scheme (CJRS) in March 2020. Under this scheme, employers could place employees on 'furlough' - keeping them on the payroll but with no work required - and claim a government grant covering up to 80% of their wages (capped at £2,500 per month).

The CJRS was the largest peacetime financial intervention by the UK government, supporting nearly 12 million jobs at its peak. The scheme evolved over its lifetime. Initially, furloughed employees could not do any work for their employer. From July 2020, 'flexible furlough' was introduced, allowing employees to work part-time with the government covering wages for unworked hours. From July 2021, employers were required to contribute an increasing share of the wage costs.

The CJRS closed permanently on 30 September 2021. There is no current equivalent scheme. Any employer wishing to place employees on furlough (unpaid leave or reduced pay) today would need to do so as a contractual matter, requiring the employee's agreement, and without any government subsidy.

The legacy of furlough remains relevant for several reasons. HMRC is actively investigating businesses that claimed CJRS grants incorrectly or fraudulently, with powers to recover overclaimed amounts and charge penalties. Companies that received CJRS grants must have reported them in their Corporation Tax returns. Some employment disputes arising from the furlough period are still being resolved through tribunals.

Step by Step

During the CJRS, employers submitted claims through the HMRC online portal specifying which employees were furloughed and for how long. HMRC calculated the grant based on the employee's reference pay (usually their February 2020 salary) and paid the grant into the employer's bank account. The employer then processed the furlough pay through normal payroll, deducting income tax and NI as usual.

The grant covered 80% of normal wages up to £2,500 per month per employee. Employers could choose to top up the remaining 20% but were not required to. Employer's NI and pension contributions on furlough pay were initially covered by the scheme but later fell back to the employer.

Now that the scheme has ended, if an employer wants to temporarily lay off or short-time employees, this must be handled through contractual lay-off provisions (if they exist in the employment contract) or with the employee's agreement. Without a contractual right, placing an employee on unpaid leave unilaterally would likely be a breach of contract and could give rise to claims for constructive dismissal or unlawful deduction of wages.

Practical Tips

  • If you claimed CJRS grants, ensure they were correctly included as taxable income in your Corporation Tax returns for the relevant periods
  • Keep all records of furlough claims, correspondence with employees, and payroll calculations for at least six years in case HMRC investigates
  • If you suspect you may have overclaimed, consider making a voluntary disclosure to HMRC to reduce the risk of penalties
  • Include contractual lay-off and short-time working provisions in employment contracts to give flexibility for future downturns, even without a government scheme

Common Mistakes to Avoid

  • Claiming CJRS grants for employees who were actually working during furlough periods, which HMRC is actively investigating and can result in penalties of up to 100% of the overclaimed amount
  • Not including CJRS grants as taxable income in Corporation Tax returns, which is required - the grants are taxable trading income
  • Assuming there is still a furlough scheme available - the CJRS ended on 30 September 2021 and there is no current replacement
  • Placing employees on unpaid leave without a contractual right or employee agreement, which can result in breach of contract claims

Frequently Asked Questions

Is the furlough scheme still available?

No. The Coronavirus Job Retention Scheme ended on 30 September 2021. There is no current government scheme covering employee wages during periods of non-work. Any arrangements to reduce employee hours or pay must be handled contractually.

Can HMRC still investigate my furlough claims?

Yes. HMRC has powers to investigate CJRS claims and can raise assessments to recover overclaimed amounts for several years after the scheme ended. If you overclaimed accidentally, it is better to voluntarily disclose this to HMRC. Deliberate fraud carries severe penalties.

Was furlough pay taxable?

Yes. For employees, furlough pay was treated as normal taxable earnings subject to income tax and NI through PAYE. For employers, CJRS grants received were taxable trading income that should have been reported in Corporation Tax returns.

Can I put employees on furlough now without a government scheme?

You can ask employees to agree to temporary reduced hours or pay, but this requires their consent or a contractual lay-off clause. Without either, reducing pay or stopping work would be a breach of contract. There is no government subsidy available.

Source: HMRC guidance on the Coronavirus Job Retention Scheme; HMRC Compliance Handbook CH401000 - CJRS compliance checks

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