This article explains how FreeAgent performs its payroll furlough calculations for claims dated up to 30th June 2020. (For claims dated from 1st July onwards, see the information in this article.)
Please note that FreeAgent's payroll functionality won't be available if you have an unincorporated landlord account or if you're preparing your accounts using the cash accounting basis.
If you notice that FreeAgent’s payroll furlough calculations produce different results to HMRC’s furlough calculator, please don’t be alarmed.
Firstly, please be assured that the method that FreeAgent uses to perform its payroll furlough calculations is a correct method that has been endorsed by HMRC for use by software developers. Although HMRC uses a different calculation process, its instructions to software developers allow FreeAgent to use the following method.
How FreeAgent calculates your claim
Let’s say you have the following figures in your FreeAgent account:
- Employee’s basic pay: £1,000
- Number of days furloughed: 30
- Pay date: 30th April 2020
FreeAgent calculates the furlough pay as follows:
- Start with the employee’s basic pay from their payroll profile.
- Multiply that by 12 to turn it into a yearly amount.
- Divide it by 365 to get the daily amount. (If the pay date is on or before 5th April 2020, FreeAgent will divide the figure by 366, as the tax year 2019/20 was a leap year.)
- Multiply that by the number of days in the furlough period.
- Finally, multiply that figure by 80%.
In the above example, this calculation method results in the following outcome:
£1,000 x 12 / 365 x 30 x 80% = £789.04
(Any difference in pennies that you notice between this manual calculation and the calculation in FreeAgent will be a result of rounding).
As HMRC’s method is to calculate 80% of the employee’s basic pay, HMRC’s calculator will provide an outcome of £800.
Both calculations are acceptable. According to HMRC’s guidance, “HMRC will not decline or seek repayment of any grant based solely on the particular choice of pay calculation, as long as a reasonable choice of approach is made.”
FreeAgent’s calculation method is taken from HMRC’s guidance to software developers, so please don’t worry if it gives you a different figure from HMRC’s own website calculator. It’s up to you which figure you choose to use, as long as it’s reasonable and in accordance with HMRC’s guidance.