Treasury Direction on the Coronavirus Job Retention Scheme: A summary of key points

A review of the new and updated Treasury Direction on the Coronavirus Job Retention Scheme and consideration of the key practical issues for employers to consider

01 June 2020

Updated 1 June 2020 

To read our full briefing on the government's guidance on the Coronavirus Job Retention Scheme, click here

On 15 April, the Chancellor issued a Treasury Direction to HMRC in relation to the Coronavirus Job Retention Scheme. A second Treasury Direction was subsequently issued on 20 May, clarifying and remedying some of the inconsistencies between the original Treasury Direction and the various guidance published by HMRC. Any reference to the Direction in this briefing is to the updated Direction, unless otherwise stated. Importantly, whilst the new Direction extends the scheme until 30 June 2020, it does not deal with the terms applicable to the scheme between 1 July and the end of October and as such, a further Treasury Direction will need to be issued in due course.

The Direction sets out the legal framework for the Scheme and is intended to have legislative effect. It is therefore likely that, where there is any remaining ambiguity between the Direction and HMRC’s guidance notes on the Scheme, the Direction will take precedence. That said, HMRC has stated in open correspondence on 23 April 2020 that whilst it will act in accordance with the Direction, its interpretation of the Direction is set out in its guidance and that it expects employers to look to the guidance in the first instance when seeking to understand the operation of the Scheme. This should give employers some comfort when relying on the guidance.

Key points of the Treasury Direction

Purpose of the scheme

Under the Direction, the purpose of the Scheme is stated to be to ‘provide for payments to be made to employers in respect of furloughed employees arising from the health, social and economic emergency resulting from coronavirus’. There is an explicit warning that no claim may be made under the Scheme if it is abusive or is contrary to the purpose of the Scheme.

Reasons for furloughing

The Direction states that the employer must have instructed the employee to have ‘ceased all work in relation to their employment’ and that the employer’s instruction must have been given ‘by reason of circumstances arising as a result of coronavirus or coronavirus disease’. It seems therefore that the employee does not need to have been facing redundancy in order to be furloughed.

Employee agreement

To submit a claim for a furloughed employee, the original Direction stated that the employer and employee must have ‘agreed in writing that the employee will cease all work in relation to their employment’. This differed from the position under the guidance which merely required the employer to confirm in writing to the employee that they have been furloughed. The new Direction appears to have resolved this issue: whilst agreement between the employer and employee is still required in writing, it can be ‘confirmed’ by the employer to the employee, and ‘writing’ includes communications by email. This agreement may be made by way of collective agreement, and it must specify ‘the main terms and conditions upon which the employee will cease all work’. Therefore, provided employers have written to their employees to confirm that they have been furloughed, and the terms on which this furlough have been agreed, employers should have arguably complied with the new Direction (but this will depend on the specific communications).

The Direction now confirms that records of any agreement or confirmation of the agreement should be kept until at least 30 June 2025.

Calculating the reference salary

The Direction contains detailed provisions regarding the calculation of the reference salary (the salary/wage used to calculate the claim) and distinguishes between ‘fixed rate employees’ and other employees. Employers will need to consider these provisions to categorise employees correctly.

For fixed rate employees (essentially those who receive an annual salary for basic contractual hours – although the definition is more nuanced than that), the reference salary is the amount payable to that employee in the latest salary period which ended on or before 19 March 2020 (minus the elements of pay for which you cannot claim). For most monthly paid fixed rate employees, this means that the relevant pay period will be February 2020.

For those who are not fixed rate employees, the reference salary will be the greater of (a) the average monthly (or other relevant period) amount paid to the employee for the tax year 2019/20 before the period of furlough began or (b) the actual amount paid to the employee in the corresponding calendar period in the previous year.

Excluded elements of pay

The Direction stipulates that the employee’s reference salary should not include any payment that is not regular salary or wages. This means certain elements of an employee’s pay will need to be excluded. For example, the Direction states that employers should not include any elements of salary or wages which vary as a result of performance either by the business or the employee, unless those elements constitute non-discretionary payments.

The Direction states that non-discretionary payments may include:

  • overtime, fees and commissions;
  • payments ‘made in recognition of the employee undertaking additional or exceptional responsibilities’;
  • payments ‘made in recognition of the circumstances in which the employee undertakes the employee’s duties or time when they are undertaken’; or
  • payments made ‘in recognition of other matters similar to those described above’.

It also states that there must be a legally enforceable agreement which prescribes the method for calculating a non-discretionary payment. For further detail on non-discretionary payments, see the Guidance on how to calculate 80 per cent of your employees' wages.

Helpfully, the definition of ‘regular’ pay has also been modified to remove the previously ambiguous wording referring to regular wages not including any amount that is ‘conditional on any matter’. The meaning of this phrase had not been clear and called into question the inclusion of a number of payments (eg payments made under a zero hours or casual work arrangement where and work (and pay) is conditional on it being offered and accepted), and so its removal is a welcome change.

These are complex provisions and determining what should be included in the ‘reference salary’ will need careful thought not least as the updated guidance includes further information on what ‘regular payments’ might include. Employers may wish to take specific legal advice on this.

Qualifying employers

To be eligible to claim under the Scheme, the Direction provides that at the time of making a claim, an employer must have a PAYE scheme which was registered on HMRC’s real time information system for PAYE on or before 19 March 2020. Under the previous guidance the relevant date was 28 February 2020.

Conversely, the relevant date for TUPE transfers has been changed from 19 March 2020 to 28 February 2020. Therefore, transferee employers may arguably make claims for employees who transferred after 28 February 2020 even if there was no RTI submission before 19 March 2020.

Sick leave

The new Direction has updated the position concerning employees on sick leave. Previously, the original Direction stated that, where an employee is receiving SSP at the time that the instruction to cease work is given, a period of furlough leave could not start until the SSP has ended. The new Direction, whilst still not entirely clear, indicates that an employer and employee may agree to bring a period of sick leave to an end, in order to start a period of furlough. This change is likely to cover clinically extremely vulnerable employees who cannot work from home and whose eligibility to receive SSP is due to them shielding.

Unpaid leave

The new Direction resolves some previous ambiguity between the Direction and the guidance and now confirms that staff cannot be on unpaid leave and furloughed at the same time and that, for employees on unpaid leave before 1 March 2020 any period of furlough cannot begin before:

  • the expiry of the period of unpaid leave on the date agreed or contemplated at the time when it began; or
  • where the duration of the period of unpaid leave was uncertain at the time when it began because it was intended to cover a particular event or circumstance, the ending of that event or circumstance; or
  • the unpaid leave finished on a date set out in an agreement or arrangement reached after the unpaid leave began and before 20 March 2020.


The new Direction confirms that any training carried out by staff on furlough must not provide a service to the employer or the employer’s business activities or contribute to the business activities of the employer or anything generating income or profit for the employer. Further, the training should not (to a ‘significant degree’) directly contribute to the production of any goods the employer intends to supply (as part of the making of such goods or services) or to the supply of services for which any form of consideration is received by the employer.

Furloughed directors

The Direction makes clear that statutory directors who have been furloughed are only permitted to do a very limited amount of work whilst on furlough. That work is limited to the director fulfilling a duty or other obligation arising from an Act of Parliament relating to the filing of company's accounts or provision of other information relating to the administration of the director’s company. Employers who have furloughed directors will need to ensure that the only duties they carry out fall within this very narrow ambit.

Trustees of an occupational pension scheme

The Direction makes clear that trustees of occupational pension scheme who are furloughed can carry out their trustee duties. The new Direction clarifies that this exception will not apply where the employee is fulfilling their duties as an independent trustee and their employer’s business activities include providing the services of trustees/managers or undertaking duties as an independent trustee.

The Direction contains some complex (and not necessarily very clear) requirements for employers to consider before making a claim. It is advisable to take the time to make considered decisions as to the amounts you intend to claim for before submitting a claim (and/or any further claim) to HMRC’s portal.

Transitional provisions

The Direction provides that a claim under the Coronavirus Job Retention Scheme that is made after the day on which it was published (20 May) must be made in accordance with the Direction, so it appears that claims made before that date would still be subject to the original Direction issued on 15 April (unless they comply with the second Direction in any event).

We have been advising many employers on the issues arising out of the Coronavirus Job Retention Scheme. If we can help your organisation, please contact Luke Bowery or any other member of our employment team. 


This briefing gives general information only and is not intended to be an exhaustive statement of the law. Although we have taken care over the information, you should not rely on it as legal advice. We do not accept any liability to anyone who does rely on its content.

Key contact

Luke Bowery

Luke Bowery Partner

  • Employment
  • Restructuring and Redundancy
  • Equality, Diversity and Discrimination

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