*****UPDATED 6 APRIL 2020****
As anticipated, HMRC guidance has been updated to confirm that Directors can be furloughed provided they do not do any work for, or generate any revenue for the organisation.
However, whilst the guidance says that they can still fulfil their statutory duties, it does not go into any detail about what HMRC will regard as a statutory duty for this purpose.
We anticipate that HMRC will expect to see a record of a formal board resolution having been made confirming the decision to furlough specific directors if your organisation was ever questioned. Minutes from any relevant board meeting should therefore be made and retained.
Previously the Cabinet Office confirmed that the Coronavirus Job Retention Scheme (CJRS) will also apply to off-payroll contractors working for public sector organisations, including those working through a personal service company (PSC).
This means that the CJRS can now be offered to those individuals:
- working through a personal service company,
- for a private organisation or public sector client,
- where the worker is unable to carry on working due to the COVID-19 pandemic.
The Coronavirus Job Retention Scheme has brought much relief for many businesses and employees. For others, like one man band companies it has brought much uncertainty. Initially the guidance was unclear as to whether a sole director could claim furlough, however the Government has confirmed “furlough” will be available to sole director companies (under certain conditions) and has published updated guidance.
What is the Coronavirus Job Retention Scheme?
The Coronavirus Job Retention Scheme is a temporary scheme open to all UK employers for at least three months starting from 1 March 2020. Under the scheme Employers can use a portal to claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. Employers can use this scheme anytime during this period.
The scheme is open to all UK employers that had created and started a PAYE payroll scheme on 28 February 2020. For further details please see:
HMRC guidance is constantly changing, so we recommend you monitor the links above regularly. We also recommend seeking professional advice before taking any action.
The general rule is that once the employee is on furlough they will not be able to work but they can undertake training or volunteer subject to public health guidance, as long as they’re not:
· making money for their company/employer
· providing services to their company/employer
The issue with sole directors
Most sole directors are paid as “office holders” (at less than the minimum wage) and not a Director, topped up by dividends up to the 40% rate band. If they were an employee then they would need to write to themselves to put themselves on furlough. This would leave the company without anyone working in it and give rise to wider company law issues. For example, does this qualify as a business? Wouldn’t a director be trying to generate new work or get new contracts, deal with invoices/receipts etc? Or make plans for when the crisis is over?
HMRC has eased some confusion and confirmed salaried company directors are eligible to be furloughed and receive support through the job retention scheme as office holders. Although company directors owe duties to their company which are set out in the Companies Act 2006, they furlough themselves provided they do no more than would reasonably be judged necessary for that purpose, for instance, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.
Furloughed directors as employees on can only claim on their PAYE element, even if they are the sole employee. Basic conditions are as follows:
- they can qualify as normal under CJRS
- they must not provide any services that is income generating
- can continue to perform their statutory obligations as directors/office holders e.g. official legal filings, Company secretarial etc
- only the PAYE element can be furloughed – not dividends
How can furlough for directors be achieved?
HMRC state that where a company (acting via its “board of directors”) considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, it can decide that such directors should be furloughed. The decision should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned. For sole directors, this effectively means
- record of a formal board resolution having been made confirming the decision to furlough specific directors
- minutes from any relevant board meeting should therefore be made and retained.
- email to your accountant notifying of the same.
What to do now?
The new HMRC portal to make an application for the Job Retention Scheme will not be available until mid to late April. Our advice would be to wait until then and look to claim furlough once the rules are fully clarified as you are able to backdate the furlough notice.
If you need help with the tax implications of the above please call us on 0114 272 4984 or email firstname.lastname@example.org.