Section 76 of the Coronavirus Act 2020 provided that HMRC were to have such functions as Her Majesty’s Treasury (the “Treasury”) may direct in relation to coronavirus or coronavirus disease. Under this power, the Treasury made various directions in relation to the payment and management of coronavirus support payments.

The first such direction, “The Coronovirus Act 2020, Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Direction”, was made on 15 April 2020. The Schedule to that direction set out the terms of a scheme, the Coronavirus Job Retention Scheme (“CJRS”), for the making of coronavirus support payments to employers.

The parties made their submissions at the hearing by reference to the CJRS as set out in the Schedule to this first direction. References to paragraph numbers in the CJRS (in the form “CJRS [xx]”) in this decision notice are to the paragraphs in the Schedule to that direction. The parties agreed that the revisions and extensions to the CJRS made in subsequent directions under The Coronavirus Act 2020 did not have any bearing on the issues before the tribunal and so we do not refer to them.

CJRS [3] and [4] enabled an employer (a “qualifying employer”) who had a qualifying PAYE scheme to make a claim for coronavirus support payments.

CJRS [5] sets out the nature of the costs of employment that a qualifying employer was entitled to claim under the CJRS. It was in the following form:

For these purposes a “relevant CJRS day” was either 28 February 2020 or 20 March 2020 (CJRS [13.1]).

The definition of “furloughed employee” is found in CJRS [6.1]. In summary, an employee was a furloughed employee if the employee had been instructed by the employer to cease all work in relation to their employment, the employee had ceased work for 21 or more calendar days or more, and the instruction was given by reason of circumstances arising as a result of coronavirus.

CJRS [7] set out the conditions that had to be met for costs of employment within CJRS [5] to be treated as qualifying costs. It was in the following form, so far as relevant:

CJRS [8] provided for the amounts which could be reimbursed under the CJRS. The amount of the payment is limited by CJRS [8.2] to the lower of £2,500 per month and 80% of the relevant employee’s reference salary (determined in accordance with CJRS [7.2] or [7.7]). CJRS [8] was in the following form, so far as relevant:

In cases where a person receives an amount by way of a coronavirus support payment to which that person was not entitled, the amount of the excess claim is recovered by a charge to income tax under paragraph 8 of Schedule 16 to the Finance Act 2020 (“FA 2020”). Paragraph 8 provided, so far as relevant:

Under paragraph 9 Schedule 16 FA 2020, HMRC may issue an assessment to income tax charged under paragraph 8. Paragraph 9(1) was in the following form:

We set out our findings of fact in this section.

Lucky Eyes operated a qualifying PAYE scheme and was a qualifying employer for the purposes of the CJRS.

Lucky Eyes made claims for coronavirus support payments under the CJRS in respect of payments made to five different employees.

It has been no part of HMRC’s case before us that any of the employees were not furloughed employees. We have proceeded on the basis that all the employees were furloughed employees within the meaning of CJRS [6.1].

Lucky Eyes made claims each month for 17 months over the two accounting periods (between May 2020 and September 2021). The first four claims (May 2020 to August 2020) were for payments made to four employees; one claim (December 2020) was for payments made to two employees; the remainder were for payments made to three employees.

Details of the amounts claimed for each employee for each month are set out in Appendix 1 to this decision notice. We have anonymized these details and refer to the employees as “Employee A”, “Employee B”, “Employee C”, “Employee D” and “Employee E”. We note that:

The monthly amounts paid by way of salary to each of the employees in the tax year 2019/20 – the tax year prior to the introduction of the CJRS– are set out in Appendix 2. The amounts paid to each employee. The amounts paid to Employee A and Employee B are relatively fixed with minor variations, but the monthly amounts paid to other employees vary considerably.

There is no evidence that there was at any relevant time a contract between Lucky Eyes and any of the employees under which the employee was entitled to an “annual salary”. We have not been provided with any written contracts between Lucky Eyes and any of the employees; nor have we been provided with any other evidence of a binding legal obligation on Lucky Eyes to pay an annual salary to any of the employees.

On 23 November 2022, having made enquiries into the amounts claimed by Lucky Eyes, Mr Painter issued assessments to income tax under paragraph 9 Schedule 16 FA 2020 to Lucky Eyes in respect of amounts of coronavirus support payments to which he considered Lucky Eyes were not entitled. The assessments were in the amounts of £9,479.20 for the tax year 2020/21 and £18,184.90 for the tax year 2021/22.

Lucky Eyes requested a review of Mr Painter’s decision. Following a review, the reviewing officer concluded that the assessment of the tax year 2020/21 should be reduced to £8,714.80, but confirmed the assessment for the tax year 2021/22.

Lucky Eyes appealed to the tribunal. The assessments were stood over pending the appeal.

In June 2023, Mr Painter was contacted by the HMRC’s Solicitor’s Office. He was informed that the calculations on which the assessments were based were not correct. This was because he had assumed that Employee A, Employee B and Employee C were fixed rate employees when, in HMRC’s Solicitor’s Office’s view, they were not. (Employees who are not “fixed rate employees” (CJRS [7.6]) were referred to in argument as “variable rate employees”. We have adopted the same terminology.) In addition, there were errors in Mr Painter’s calculation of the reference salary of Employee D and Employee E.

Mr Painter recalculated the amounts of coronavirus support payments to which Lucky Eyes was not entitled as £8,284.27 for the tax year 2020/21 and £18,010.40 for the tax year 2021/22 taking into account the comments of HMRC’s Solicitor’s Office. In particular, these amounts were calculated on the assumption that all employees were variable rate employees for the purpose of the CJRS.

Appendix 3 to this decision notice shows an overall summary of the total amount claimed by Lucky Eyes for each month, HMRC’s revised calculation of the amount that the company was entitled to claim, and the resulting amounts overclaimed or underclaimed (on HMRC’s revised calculations). As can be seen from Appendix 3, there were two months (July and August 2020) in which the amount claimed was less than the amount that the company was entitled to claim.

HMRC now requests that the tribunal confirm the assessments, but in these reduced amounts.

Lucky Eyes disputes the assessments. Ms Deveci relied on the following points.

The other issue which arose in the course of the hearing was whether appropriate credit had been given in HMRC’s computation for cases where Lucky Eyes had, in fact, claimed an amount which was less than the amount to which it was entitled. It was HMRC’s case that credit could only be given within a single claim (i.e. within each monthly claim). No credit could be given between monthly claims (i.e. it was not possible to set an amount underclaimed in one month against an amount overclaimed in another). The effect was that no credit was given for the amounts underclaimed in July and August 2020.

We asked for submissions on this issue following the hearing. HMRC provided written submissions in support of their case. Lucky Eyes did not make any submissions.

We turn first to Ms Deveci’s argument that the amounts which the Lucky Eyes was entitled to claim under the CJRS should have been calculated by reference to the amounts to which each employee was entitled by way of salary for March 2020.

The CJRS distinguishes between amounts of salary paid to “fixed rate employees” and payments made to other employees, whom we have referred to as “variable rate employees”.

In very broad terms, the amounts that can be claimed under the CJRS for payments made to employees is determined by reference to a “reference salary”. For fixed rate employees, the reference salary is the amount payable to the employee in the latest salary period ending on or before 19 March 2020 (CJRS [7.7]). For variable rate employees, the reference salary is the greater of (a) the average monthly amount paid to the employee for the tax year 2019/20 (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 (CJRS [7.2]).

HMRC’s revised computations of the payments to which Lucky Eyes was entitled under the CJRS were based on an assumption that each of the employees was a variable rate employee. Ms Deveci’s argument can only be correct if each of the employees is a fixed rate employee.

An employee can only be a fixed rate employee for the purposes of the CJRS if the person was entitled under their “contract” to be paid an annual salary (CJRS [7.6(b)]). For these purposes, “contract” means a legally enforceable agreement (CJRS [7.8]). The burden of proof is on Lucky Eyes on this issue. As we have described above, Lucky Eyes has not produced any evidence that there was a contract between Lucky Eyes and any of the employees at any relevant time under which any employee was entitled to an “annual salary”.

On that basis, we have concluded that none of the employees was a “fixed rate employee” within the definition in CJRS [7.6]. The reference salary for each employee therefore fell to be determined by reference to the rules for variable rate employees as set out in CJRS [7.2] (as set out in HMRC’s revised calculations).

Ms Deveci’s second argument is, in effect, that the claims made by Lucky Eyes were within the spirit of the CJRS and, in particular, the increased claims made by the company in relation to payments to Employee C and Employee D after January 2021 were justified because, in broad terms, the overall support obtained by the company did not increase materially.

We cannot accept this argument.

The final issue that we need to consider is the set-off of amounts underclaimed in July and August 2020. HMRC say, by reference to HMRC guidance, that “when an employer has made an underclaim, they are able to offset any underclaims for employees against the overclaims for any other employees to arrive at the final, or “net” amount due to HMRC. However, this cannot result in an amount being due and it can only be done within the same claim period, not between different claim periods”.

In their written submissions, HMRC made reference not only to the The Coronovirus Act 2020, Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Direction as issued on 15 April 2020, but also to the later directions made the Coronavirus Act 2020. HMRC noted that in the earlier directions made under The Coronavirus Act 2020, there was no provision to amend claims that had been made under the CJRS. In later directions, provisions were added that allowed for amendment within set time periods where there was a “reasonable excuse”. It is not clear to us that these submissions entirely address the point. That having been said, we note that the CJRS claims have clearly been made on a monthly basis and that paragraph 8 Schedule 16 FA 2020 imposes charges on amounts overpaid under the CJRS as and when they are received without any provision for set off. On that basis – and in the absence of any arguments to the contrary – we have accepted HMRC’s submission, although we have to say that the final result strikes us as prone to create unfairness.

For these reasons, we dismiss this appeal.

As invited by HMRC, we reduce the amounts assessed to:

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

Employee A

Employee B

Employee C

Employee D

Employee E

Employee A

Employee B

Employee C

Employee D

Employee E

Summary of claims