The Coronavirus Job Retention Scheme: how furlough worked

The Coronavirus Job Retention Scheme, known to almost everyone as furlough, was the government's main wage support scheme during the coronavirus pandemic. It paid employers a grant so they could keep staff on the payroll and pay them 80% of their salary, up to a maximum of £2,500 a month, instead of making them redundant¹. The scheme was accessed only through employers: an employee never applied to the government directly, the employer claimed the grant and passed it on as pay¹.

The scheme has closed. The help came to an end on 30 September 2021, and no furlough claims have been possible since¹. Official statistics confirm that both the furlough scheme and the self-employed scheme ceased operation before the 2022 to 2023 tax year². This page remains a reference for how the scheme worked, what it paid, who it covered, and what its rules mean for people still dealing with its aftermath, including HMRC checks on claims made at the time.

The furlough scheme has closed: what that means now

Furlough ended on 30 September 2021¹. The scheme had originally been due to close much earlier: at the March 2021 Budget it was extended from 30 April to the end of September 2021⁴. When it closed, no further claims could be made, and there has been no successor wage support scheme of the same kind.

For anyone who was furloughed, the practical effects of the closure were straightforward. Furloughed employees remained employed throughout their time on the scheme, because the scheme was designed to keep people on the payroll rather than move them onto benefits¹. When the scheme ended, employers either brought staff back to their normal hours, changed their contracts, or began redundancy or other processes under ordinary employment law. The special rules that treated furloughed workers as still working, for benefits purposes, also fell away: the legislation defined a person as ceasing to be a furloughed employee on the earlier of the day the scheme itself ceased, the day they stopped undertaking work, or the date of a permanent reduction in their hours⁵.

One legacy of the scheme still matters. HMRC has powers to check claims made under coronavirus support schemes and to recover money where a claim turns out to have been wrong. Policy published in March 2021 set out that HMRC can recover grants where an individual is no longer eligible following a change in circumstances, a rule that aligned the treatment of the self-employed scheme with the furlough scheme⁶. Employees who were furloughed correctly and received the pay due to them are not exposed by these checks; they concern the employers and individuals who received the grants.

Furlough pay: 80% of wages, capped at £2,500 a month

The core of the scheme was simple: the government paid employers a grant worth 80% of a furloughed employee's wages, up to a maximum of £2,500 a month, and the employer passed this on to the employee as pay¹. The Office for Budget Responsibility, which monitors public spending, describes it as a taxable grant paid to employers to be passed onto employees, worth 80 per cent of a furloughed employee's wages, up to a maximum of £2,500 a month³.

The cap mattered more than the percentage for anyone on a higher salary, because the grant never exceeded £2,500 a month even where 80% of their pay was worth more than that¹. For lower earners, the 80% figure was the binding limit. The salary used for the calculation included overtime and regular commission but not bonuses¹, so people whose usual earnings relied heavily on bonuses saw a larger fall in pay than the headline 80% suggests.

Employers could choose to top up the grant to 100% of salary, but this was voluntary⁷. Many did not, so most furloughed employees lived on 80% of their pay, or less if they had been earning above the cap. The Resolution Foundation worked through what this meant for a typical household: a single adult earning £30,000 who was furloughed would see their net income, after tax, fall from £22,800 to £18,700, an 82 per cent replacement rate once the tax and benefit system was taken into account⁸.

Furlough pay was taxable income in the ordinary way. The grant was paid to employers as a taxable grant and passed through payroll, so it appeared in pay records and was subject to income tax and National Insurance like normal wages³. This is why HMRC's personal income statistics treat the furlough and self-employed schemes as part of the income landscape of the pandemic years, and why the schemes' closure before the 2022 to 2023 tax year is noted in those statistics².

Who could be furloughed

The scheme was broad. Eligible groups included people paid through PAYE via a recruitment agency, people on zero-hours contracts, people off work due to childcare responsibilities, apprentices, nannies who were PAYE employees, people on fixed-term contracts, employees of companies that had gone into administration, company directors, agency workers, and salaried members of Limited Liability Partnerships¹. At the scheme's launch, the Resolution Foundation noted that it covered people on zero-hours and agency contracts so long as they were paid through standard payroll schemes, and that people who had recently been laid off could be rehired onto the scheme⁹.

The common thread was PAYE. Furlough was a scheme where the government helped employers pay their employees' salaries, and it was accessed only through employers¹⁰. An employee told to stay home because there was no work did not apply for the 80% themselves: the employer applied to the scheme and paid the employee from the grant¹¹. Furloughed workers remained employed while on the scheme¹².

There were administrative deadlines on the employer side. To be eligible for payment from November 2020 onwards, the employer needed to send HMRC a payroll notification for the employee by 30 October 2020¹. This kind of cut-off is why some people who assumed they were covered found their employer could not claim for them.

Where furlough did not apply

The scheme did not apply to the self-employed. The Resolution Foundation noted at the launch that the Coronavirus Job Retention Scheme announced by the Chancellor would not apply to the self-employed¹³. Instead, the self-employed were supported by a separate scheme, the Self-Employment Income Support Scheme (SEISS), which paid taxable grants and had the same £2,500 per month cap as the employee scheme⁹. That scheme has also now closed¹⁴.

Furlough also did not cover people whose hours had been reduced but not fallen to zero, at least in its original form: the government did not make it available to those working reduced hours, only to those with no work to do⁹. This gap was one of the reasons flexible furlough was introduced from July 2020.

The scheme's reach into everyday finances had limits that surprised some people. Mortgage lenders treated furlough income in different ways when assessing applications. Between March and July 2020 the government paid 80% of furloughed workers' earnings up to £2,500 a month, but some lenders would not consider furloughed income at all when assessing affordability, including Accord, Clydesdale Building Society, TSB, Virgin Money and Yorkshire Building Society, while HSBC would not consider furloughed employees with no return to work date or a return date more than three months away¹⁵. Nationwide, by contrast, assessed furloughed applicants on 80% of their usual income up to £30,000 gross, and accepted employer top-ups subject to written confirmation⁷. Anyone applying for credit while furloughed therefore faced very different answers depending on the lender.

Flexible furlough: working part-time on the scheme

Until the end of June 2020, people could not carry on working for their employer at the same time as being furloughed, although they were able to work for another company if their contract allowed it¹. This all-or-nothing design meant an employee was either fully furloughed or fully at work.

From 1 July 2020 an employee could return to work part-time and be furloughed part-time¹. Under flexible furlough, the employer paid the employee in full for the hours they worked, and claimed the grant for the hours they did not. This let businesses bring staff back gradually as demand returned, and let employees recover part of their income before the scheme closed.

Flexible furlough also changed the position for people whose hours had been reduced rather than cut to zero, closing the gap in the original design. For benefits purposes, the rules that had treated only fully furloughed workers as still in work were extended to people whose hours had fallen because of coronavirus, as the next section explains.

How the government share fell before the scheme ended

The 80% figure was not constant across the whole life of the scheme. The government's share of wages was reduced at two points, with employers required to make up the difference, before being restored and then reduced again as the scheme wound down.

Between 1 November 2020 and 30 June 2021 the government paid 80% of salary, with the employer expected to contribute the National Insurance and pension contributions¹. But during October 2020 the government paid 60% of salary, with the employer expected to contribute 20%¹, and in September 2020 the employer portion was 10% of workers' salaries, with the government paying 70%¹⁵. At the March 2021 Budget, the Chancellor confirmed the wind-down for the final months: anyone on furlough would continue to receive 80% of their salary, capped at £2,500 a month, but employers would have to contribute 10% from July and 20% in August and September towards the hours their staff were not working⁴.

The important point for employees is that these changes did not change their pay. The employee always received 80% of their salary, up to £2,500 a month¹; what changed was who funded it. In the final months the employer paid a growing share of the same 80%, which was one of the pressures that led some employers to bring staff back full-time or end furlough arrangements before 30 September 2021.

How furlough affected household income and benefits

Furlough cut most households' income by a fifth, and for higher earners by more. The Resolution Foundation's worked example of a full-time National Living Wage earner in a renting, single-earner couple with two children, moved onto the scheme, showed gross income from work falling 20 per cent, from £330 per week (£17,000 per year) to £260 per week (£13,600 per year)¹³. After a rise in Universal Credit, that household's net income came in at 96 per cent of previous levels, falling only slightly from £430 per week (£22,400 per year)¹³. The government also announced a £7 billion increase in means-tested benefits at the same time as the scheme launched, which cushioned lower-income households⁸.

For people on working tax credits, special rules were written into legislation so that furlough did not destroy their entitlement. A person who was a furloughed employee under the scheme, or a "coronavirus-impacted worker", was treated as being engaged in qualifying remunerative work during that period¹⁶. The definition of a coronavirus-impacted worker covered someone previously working at least 16 hours a week (or at least 30 hours for the 30-hour element) who started working fewer hours due to coronavirus, was told by their employer not to work any hours without a furlough application, or was unable to work due to shielding¹⁶.

In practice, this meant furloughed workers retained their working tax credits and did not need to tell HMRC about their reduced hours: even though they were not working, or had reduced hours to below 16 per week, they kept their credits¹⁷. HMRC told claimants not to update working hours if working less due to the coronavirus¹². The rules also kept protection going after furlough ended: a person who ceased to be furloughed, had an offer of work within four weeks and accepted it, but was then told not to work all contracted hours due to a non-permanent coronavirus reduction, was treated as a coronavirus-impacted worker⁵, and someone who ceased to be furloughed was treated as being in qualifying remunerative work for a four-week period immediately afterwards⁵. Periods of absence due to NHS Test and Trace self-isolation instructions also counted as qualifying remunerative work⁵.

Furlough also fed into statutory payments. Regulations amended the rules for statutory payments so that a furloughed employee whose employer had claimed under the scheme, and whose earnings were lower as a result, had their normal weekly earnings calculated as if they had been paid what they would have earned had they not been furloughed¹⁸. The regulations defined a furloughed employee as a woman whose employer had claimed and was in receipt of financial support under the scheme and whose earnings were lower as a result of being furloughed¹⁹. No regulatory impact assessment was produced for these regulations, in view of the urgency required to provide additional financial support to those unable to work¹⁹.

Pension contributions continued on furloughed pay. The government paid the minimum 3% employer contribution based on the furloughed salary, capped at £2,500 a month²⁰. Official statistics also track the scheme's footprint in the wider economy: during Quarter 1 2021, jobs on furlough fell from 4.9 million to 4.3 million²¹.

What the scheme cost and how many people it supported

The furlough scheme was one of the largest single interventions in the UK public finances in decades. Official figures from the Office for Budget Responsibility state that the furlough scheme and the self-employed scheme together cost £78.2 billion in 2020-21, and £97.4 billion overall, and supported the incomes of 11.5 million people at their peak³.

The scale took even the scheme's designers by surprise. When the Chancellor announced the scheme in March 2020, the estimate was that, should it support one million employees, the government would be paying out around £4.2 billion over the initial three-month period¹³. The Resolution Foundation's contemporaneous estimate for a comparable self-employed scheme was £3.6 billion if one million people moved onto a retention scheme with an 80 per cent replacement rate over three months⁸, and HMRC data on self-employed earnings suggested the self-employed scheme could cost around £10 billion over three months if everyone entitled claimed it⁹. The final figures were far above all of these early estimates.

The number of people covered also grew well beyond expectations. UK Finance reported in its Household Finance Review that the scheme was contributing to the wages of over eight million workers in 2020²². The Resolution Foundation had earlier noted the government's own scenario suggesting a fifth of workers might be off at the peak²³, a scale that would have overwhelmed the benefits system had the wage support not been run through employers.

Where to get help now

Furlough is closed, but the situations it was created for, a sudden loss of income, reduced hours, and household budgets under strain, still arise. The benefits system is the main route for income support now, and benefits in the UK explains what exists and how entitlement is worked out. Charities such as Turn2us publish timetables of benefit changes and tools for checking what a household can claim¹⁰.

For debt problems, free advice matters more than paid services. StepChange, a debt advice charity, has documented how households that fell behind during the coronavirus period could face additional court and bailiff fees, with a conservative estimate of 738,000 households facing £158,668,815 in additional fees²⁴. Its research is a reminder of how quickly arrears can grow charges of their own. Debt: a complete guide sets out the free options and the protections available.

For tax questions connected to the pandemic schemes, HMRC remains the authority. Its published policy allows it to recover grants where an individual is no longer eligible following a change in circumstances⁶, and its personal income statistics record the schemes' operation and closure². Anyone unsure of their position can check their records with HMRC directly.