Furloughing Directors

with commentary from Forbes Dawson

The issue

The question of whether (shareholder) directors of their own companies can ‘furlough’ themselves is still subject to some ambiguity. In simple terms many director shareholders want to know where they stand in relation to the Coronavirus Job Retention Scheme (CJRS).

Currently, two schemes have been launched by the government to help businesses and individuals cope financially with the Coronavirus lockdown. These are:

  • Self-Employed Income Support Scheme (SEISS)
  • Coronavirus Job Retention Scheme (CJRS)

SEISS is aimed at the unincorporated self-employed and members of partnerships where profits are less than £50,000 per year and the second is aimed at employees.

Although the government has said that directors may qualify for CJRS, there is much speculation that this will generally not be the case and further clarification is needed here.

Considering the detail of CJRS

Under CJRS, employers will be able to use an online portal to claim for 80% of furloughed employees’ 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.

Furloughed employees must have been on the PAYE payroll on 28 February 2020, and can be on any type of contract, including:

  • full-time employees
  • part-time employees
  • employees on agency contracts (but not working)
  • employees on flexible or zero-hour contracts

The scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer. Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme.

The catch is that, when on furlough, an employee cannot undertake any work. This includes providing services or generating revenue.

To be eligible for the subsidy, employers should write to their employee confirming that they have been furloughed and keep a record of this communication.

What about directors?

The jury is out about whether directors will qualify. Prima facie if they are on payroll then they should qualify. However, there are practical considerations about whether a shareholder director can realistically be expected to do no work during a furlough period.

Furthermore, in many cases this will largely be an academic question because directors will typically pay themselves a small salary (say £10,000) and then top this up with dividends. It is currently very clear that dividends are not taken into account under CJRS.

Various commentary

On 27 March 2020, Ben Kerry, Head of Labour Markets, HM treasury, stated:

With respect to Directors and owner managers, that does not disqualify them from being furloughed so long as they are on PAYE payroll. I understand that they will have some statutory duties and obligations such as filing their accounts and they will still be allowed to undertake those statutory duties whilst they are being furloughed so that would not count as doing work. So one of the key conditions of the furlough scheme is that the employee is not allowed to work for the employer, but if you are the owner-manager and you do have statutory duties then you can continue to undertake those duties while being on furlough.

This position is not included on HMRC’s website.

Three days after the above statement ICAEW stated:

We are awaiting full details of how the scheme will operate from HMRC, including for directors paid via PAYE but not receiving a consistent, regular monthly salary. We understand the intention of the scheme is to include those on irregular earnings, but full details on how the amount of the grant will be calculated for these individuals have yet to be released.

As with other businesses, such directors would need to have been on the payroll on 28 February 2020 and they cannot work while they are on furlough leave. We do not yet know the extent to which minor directorial duties would be disregarded, or whether the requirement that a furloughed employee should do ‘no work’ would prohibit this.

It is ICAEW’s view that in such times as we find ourselves, a pragmatic view should be taken.

Forbes Dawson view

HMRC guidance is clearly urgently needed here. It would be useful if they could specifically confirm that directors can be furloughed and also what work can be performed without breaching the rules. It is unrealistic to expect shareholders to do nothing to safeguard the future of their businesses during any ‘downtime’. In any event, if we accept that it is extremely unlikely that dividends will be included in any arrangement, then CJRS will be of little help to most directors who tend to take most remuneration in the form of dividends. Currently shareholder directors do seem to be the ‘forgotten victims’ of this crisis. In the Appendix below I include an exchange between a local golf pro and his MP. This kind of correspondence is taking place up and down the country…………………

 

Appendix – Letter from golf pro to MP and response

Letter

From: Golf pro
Sent: 29 March 2020 22:12
To: Office of Graham Brady
Subject: Micro Limited Company

Sir Graham Brady MP

Dear Sir Graham,

Re; micro Limited Company’s CV 19 help

I hope that you’re well.

Are the government seriously not intending to help Micro Limited Company’s with sole Director’s ?

If so this is an outrage and will lead to serious hardship for many families and flies in the face of business halting to prevent the spread of CV 19.

The government should reconsider their position on this and shape policy in line with employed workers and sole traders. Furlough put simply doesn’t work for Limited Companies with sole Directors.

Many accountants have advised their clients to setup as Limited Companies for a whole host of reasons but mainly to facilitate trade which the Tory party should be encouraging.

I’m a golf coach and my work is seasonal. CV 19 has devastated my business this year and leaves me worried about financial commitments and providing for my family.

I can’t operate my coaching business because of the coronavirus and my workplace was forced to close on 23/3/2020and the business has been affected since the start of March with many cancellations. Business is likely to be frustrated until at least Autumn and possibly longer.

To compound this the government really haven’t helped people in my position with micro limited company’s as sole director’s and especially in comparison to sole trader positions.

I understand that the only current option is to Furlough myself at £575.00 pm.

This amount doesn’t get close to my outgoings.

The government must step up and support Limited Company’s and I’d appreciate any leverage that you have and I sincerely hope that you can help in this matter.

I look forward to hearing from you.

Many thanks in anticipation.

Regards,

Golf pro

Response

Dear [Golf pro],

I am sorry to hear about how this is affecting you. I of course sympathise with your points. Several other constituents in the same situation have been in touch about this particular issue.

I have raised the point directly with Treasury and will continue to do so. I know there are many others making the same case.

If I can be of assistance in any other regard, for instance in relation to the other support available, do not hesitate to contact me further.

Yours sincerely,

Sir Graham Brady MP

Regards

Working from home – ensuring employees stay mentally strong

With the Government recommending those that can, work from home, it is important to note that for some people it’s not the perfect set up.

There is the obvious advantage of no commuting and technology means we can have more autonomy over our time but for some people we will need to monitor their mental health. Put simply working from home doesn’t work for everyone.

For some people, working from home can put their mental health at risk, causing feelings of isolation and disconnection and the feedback and encouragement they receive form their fellow workers in the office can be critical to their productivity.

Working remotely may create a pressure “to appear busy” or to be online throughout the working day. This can cause stress.

So, what do the experts recommend?

Working from home is a new phenomenon for many accountants, so issue guidance and be relaxed about the results in the first week or so as people find their way.

Suggested guidance for accountants:

• Guidance will firstly be about technology and then setting the parameters that it’s OK to work in the morning and take a couple of hours out.
• Let people know they should set up a “work zone or space” and not the sofa!
• Encourage “self- care time” for meditation or exercise. One firm we know does a group video meeting with a personal trainer 3 times a week for basic fitness (let’s be honest we are all different shapes and sizes!).
• Hold a team Skype, GoToMeeting, Facebook Messenger call or other group telephone call for 20 minutes each morning at 9.00am. Seeing your co-workers is a boost and just to know “you are all in it together” helps.
• Encourage a down time of between 12 and 2 and no work after 5.
• Recommend no emails before 12 so people can get their heads down and do the processing or preparation of returns and accounts they are hired for.
• If you are not paperless then allocate someone to fetch and carry files to employee’s home addresses.
• Go paperless for all working papers (email 2020 if you need guidance).
• Let people come into the office alone if they need a day away from home.
• Send your people fruit and deliveries of “goodies” from time to time.

COVID-19 Key Government Webites

Below are some key Government websites where you can access the latest information:

Government action plan 

Guidance on social distancing and stay at home

Travel advice

Support for businesses

Tax helpline to support businesses who are concerned about paying their taxes

Guide for employees, employers and businesses

Budget 2020: tax-related documents

NHS Coronavirus (COVID-19)

Available support for businesses during COVID-19

Support for businesses that are paying sick pay to employees:

The Government has announced legislation to allow small and medium-sized to reclaim Statutory Sick Pay (SSP) paid for sickness absence due to COVID-19. The eligibility criteria for the scheme are:

• this refund will cover up to 2 weeks’ SSP per eligible employee who has been off work because of COVID-19
• employers with fewer than 250 employees as of 28 February 2020
• employers will be able to reclaim expenditure for any employee who has claimed SSP as a result of COVID-19
• employers should maintain records of staff absences and payments of SSP, but employees will not need to provide a GP fit note

Support for businesses that pay business rates

There will be a business rates retail holiday for retail, hospitality and leisure businesses in England for the 2020 to 2021 tax year.

Businesses that received the retail discount in the 2019 to 2020 tax year will be rebilled by their local authority as soon as possible.

A £25,000 grant will be provided to retail, hospitality and leisure businesses operating from smaller premises, with a rateable value between £15,000 and £51,000.

Any enquiries on eligibility for, or provision of, the reliefs should be directed to the relevant local authority.

Support for businesses that pay little or no business rates

Additional funding for local authorities to support small businesses that already pay little or no business rates because of small business rate relief (SBRR) has been announced by the Government.
This will provide a one-off grant of £10,000 to businesses currently eligible for SBRR or rural rate relief, to help meet their ongoing business costs.

If your business is eligible for SBRR or rural rate relief, you will be contacted by your local authority – you do not need to apply.

Support for businesses through the Coronavirus Business Interruption Loan Scheme

A new temporary Coronavirus Business Interruption Loan Scheme, delivered by the British Business Bank, will launch to support businesses’ access to bank lending and overdrafts. The government will provide lenders with a guarantee of 80% on each loan (subject to a per-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £5 million in value. Businesses can access the first 6 months of that finance interest free, as government will cover the first 6 months of interest payments.

Support for businesses paying tax

All businesses and self-employed people in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time to Pay service. These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.

To support businesses further, VAT payments have been deferred from 20th March 2020 to 30th June 2020. This is an automatic offer with no applications needed. Any accumulated liabilities will need to be paid by the end of the 2020/21 tax year being 5th April 2021.

For income tax self assessment payments due on 31st July 2020, these have been deferred until 31st January 2021. Again this is an automatic offer with no applications. No penalties or interest will be applied during the deferral period.

If you are concerned about being able to pay your tax due to COVID-19, call HMRC’s dedicated helpline on 0800 0159 559. We can help you to arrange a Time to Pay agreement.

Different Types of Business Structures

Your business might go through a variety of structures over its lifetime so it’s always helpful to know what different options there are and what implications they can have.

Types of business structure

The most common types you’ll probably know of are sole trader, partnership or company. But there is more than one type of partnership and company to consider.

Sole trader

A sole trader is a single business owner selling a product or service. However, they can still employ people and use subcontractors. This type of structure is the simplest and involves the least amount of administration work.

You must still keep accounting records and meet your legal obligations. Sole traders are personally liable for any debts of the business. Rather than paying corporation tax, sole traders pay tax on the profits of the business and this is reported through self assessment.

Partnerships

Similar to a sole trader but there must be at least two of you. It’s highly recommended that you have a written agreement between all of the partners.

Partners of a Limited Liability Partnership (LLP) have a reduced financial liability. This structure is popular with property businesses and professional services.

Limited company

Unlike sole traders or partnerships, limited companies are separate legal entities meaning you’re not personally liable for its debts.

You need to consider which type of company is right for you:

  • Company limited by guarantee
  • Company limited by shares
  • Community interest company
  • Public limited company

To give a brief overview, a company limited by guarantee is the smallest company structure and is usually chosen by not-for-profit organisations. Members are usually the directors and it can be easier to change personnel as one director leaving does not majorly change the shape of the company.

Shareholders of a company limited by shares are liable for the company’s debts up to the amount they each have invested. Unlike a PLC, this type of structure gives the owners more control over who has the shares and thus controls the company.

A community interest company is not set up for private profit so you’re unable to take funds out via shares or dividends. However, it can still pay salaries and reinvest its profits back into the business.

A public limited company has shares which are publicly traded and sold. The business needs to be reasonably successful to go down this route as a minimum of 50,000 in share capital is required.

Notifying authorities & paying taxes

Sole traders and partnerships report to HMRC using tax returns whereas companies must also report to Companies House.

Regardless of the size of the company, annual accounts, corporation tax returns and confirmation statements must all be filed. Corporation tax currently stands at 19% of taxable profits. If you’re an employee as well as a director, you’ll have the usual employment taxes to report as well.

If you sell your shares in the company, you may be liable for capital gains tax. However if conditions are met, you can qualify for entrepreneur’s relief thus reducing any capital gains tax liability.

VAT however is based on the annual taxable turnover rather than the legal structure of the business. So if you’re a sole trader, partnership or company and your turnover surpasses £85,000 the business is legally obligated to register for VAT.

Contact us

If you’d like some advice on business structure personalised to your requirements, call us on 01254 583515 or fill out the form below to arrange a free, no obligation initial appointment.

Low-Risk Ways To Start A Business

Methods To Overcome Uncertainty

So you’ve got a business idea and you think it might be a good one. But just as you’ve geared yourself up, all kinds of worries start to creep in.

Whether you’re starting from scratch or adding a new string to your bow, there are things you can do to set up your new venture whilst reducing some of the risks and stress.

Testing The Water

Have you considered trading temporarily like over a certain season or on a short term deal? It’s easier than ever these days to hire space on a pop-up basis. Speak to your local council or manager of the local shopping mall to see what’s available. Though it might not be your dream premises, 6 months trading in a temporary place could provide well needed word of mouth, brand recognition and positive reviews.

Events, fairs and festivals can offer a large number of potential customers over a short period of time, and give you lots of valued feedback on how your product or service is received.

Depending on your new business plan, and providing you have the space, you may be able to work from home. For client meetings, you can consider renting hotdesking space also.

Collaborate and Communicate

Could you work effectively with another business to minimise risks? Does an existing business have unused office space that they could sublet? As well as cutting costs, this can give you access to valuable business partners and customers.

As long as you’re not competing with your new contacts, there are lots of ways you can work together effectively.

It’s easy and free to use social media and lots of customers like that they can directly contact the business owner. Lots of website providers offer low cost options for business websites, whether you’re selling online or just need an online brochure. But don’t forget the traditional media, there are still plenty of local newspapers and community publications for you to make good use of.

Don’t Forget Your Own Time

It’s really important that you think everything through before you jump in. Work out your start up costs, running costs and how many hours or sales you need to cover those costs. Your time is a cost too so don’t forget to factor this in.

Every new business will take a little while to pay off, but be clear about when this should happen and what’s reasonable for you to sustain.

How Can We Help

Egan Roberts have specialised in acting for start up businesses for over 30 years. We can help and assist you with every aspect from putting together your business plan to making sure your books are kept up to date and filing all necessary returns. Call us on 01254 583515 or complete the contact form below.

Preparing For Self-Assessment

How Can We Help

If you want to take the stress out of completing your return, make sure you meet the deadline and ensure you’ve claimed all the reliefs you’re entitled to; then let us complete your return for you. Call us on 01254 583515 or complete the contact form below.

Don’t leave it until the last minute

With only two months left until the 31 January deadline for online returns, self assessment is very much on our minds!

There’s an added urgency this year due to Brexit. As present, the UK is scheduled to leave the EU on the same date as the self assessment deadline, which could cause some added problems for HMRC.

Exactly 2,616 people filed their returns on 25 December 2018 and according to HMRC a whopping 735,258 returns were submitted on the deadline day 31 January 2019. Don’t spend your Christmas thinking about your tax return, get it out of the way before then.

The Side Hustle

Whether it’s renting property, freelance work, driving a taxi or selling online, lots of British people are now finding ways to boost their income in addition to their day jobs.

To keep things as simple as possible, a £1,000 trading allowance has been introduced for ‘micro-entrepreneurs’ who make a small amount of income through trading. There’s a similar allowance for individuals making less than £1,000 per year from property. However, these allowances are for those who aren’t otherwise engaged in business so there are some restrictions on who can claim.

Deadlines and Penalties

Remember, if you don’t file by midnight on 31 January, you’ll immediately be issued with a £100 fixed penalty. This applies even if the reason you didn’t file your return was because you thought there was no tax to pay.

After 3 months with no return, the penalties increase to £10 for each day after that second deadline up to a maximum of £900. After 6 months, then 12 months, additional charges of 5% of the tax outstanding or £300, whichever is greater, are applied. There are also penalties in place for late payments of tax.

Last year 731,186 tax payers missed the deadline on 31 January 2019. This equates to a scary £73 million in instant fixed penalties.

How Can We Help

If you want to take the stress out of completing your return, make sure you meet the deadline and ensure you’ve claimed all the reliefs you’re entitled to; then let us complete your return for you. Call us on 01254 583515 or complete the contact form below.

2018 Budget – Businesses

Whilst there was no immediate change to the current corporation tax rate of 19% there was confirmation of the intention to reduce the rate to Keith Roberts accountant Lancashire 17% from 1 April 2020. Something to look forward to!

For those businesses with significant investment in plant and machinery planned for the next couple of years, there was welcome news with the increase in the Annual Investment Allowance (AIA) to £1m for the two calendar years 2019 and 2020. It might therefore be worth considering delaying some expenditure to the New Year in order to qualify for AIA where your expenditure in 2018 already exceeds the present £200,000 limit.

Do you remember Industrial Buildings Allowances? These were phased out in the late noughties but it seems they have made a come back in the form of a new Structures & Buildings Allowance (SBA) which is introduced at a WDA rate of 2% on new non-residential buildings. This applies not only industrial buildings but also offices and farm buildings. It starts for all construction contracts entered into on or after budget day and is also available to commercial property landlords.

On the down side From April 2019 the plant and machinery that qualifies for special rate allowances will receive relief at 6% rather than 8% currently. This also applies to integral features of buildings.

Finally, for this blog at least, the £3,000 per year employment allowance will in future only apply to those employers with a NIC bill of less than £100,000 in the previous tax year.

Click here to see our full budget report.

For more detail on the contents of the budget click here.

If you have any questions about how the new budget may affect you and your business, please contact us on 01254 583515 or fill in the contact form below.

Paying Employer National Insurance Contributions for Apprentices Under 25

Paying employer National Insurance contributions for apprentices under 25

From 6 April 2016, if you employ an apprentice you may not need to pay employer Class 1 NI contributions on their earnings below £827 a week (£43,000 a year).

They must be under 25 years old and following an approved UK government statutory apprenticeship framework (frameworks can differ depending on the UK country).

You can check that your apprentice is in a statutory apprenticeship using the following link https://www.gov.uk/government/publications/removal-of-apprenticeship-framew…

Evidence needed

If your apprentice meets the conditions above, you’ll need to have evidence to be able to apply the relief. This can be either:

  • written agreement between you, the apprentice and a training provider
  • in England and Wales, evidence that the apprenticeship receives government funding

Written agreement must show:

  • the government apprentice framework or standard
  • a start and (expected) end date for their apprenticeship scheme

If the training provider hasn’t signed the written agreement, they’ll need to give you a document that shows:

  • they’re an approved (recognised) training provider
  • the training your apprentice is undertaking, and any training already done

Alternatively, in England and Wales, you can provide evidence of government funding of the apprenticeship. This could be the declaration to receive apprenticeship incentive payments, or the employer payment schedule to the provider.

You could be the employer and a trainer if you’ve been approved by the Skills Funding Agency in England, or hold a contract for the delivery of Apprenticeships in Wales.

NICs category letters to use.

Category letter: Apprentice conditions =H

Apprentice standard rate contributions – if your apprentice is under 25 and in an approved apprenticeship framework G or If your apprentice is a foreign-going mariner and is under 25

If your employee is under 21 and meets the same conditions as an apprentice under 25, use the H or G categories.

When the statutory apprenticeship stops or your apprentice turns 25 you’ll need to use a new catergory letter.

The apprentice rate only applies to payments which are liable for Class 1 secondary NICs.

What you can tell your employees

Employees will continue to pay the standard rate of Class 1 NICs through their salary. They won’t see any reduction in their payments. It’s employers who’ll benefit from this change.

The employee’s entitlement to contributory social security benefits, including the State Pension won’t be affected and neither will their entitlement to statutory payments. Existing employees may notice a change to the National Insurance category letter on their payslip.

If you have any queries about the above please get in touch on 01254583515 and we will be happy to help or fill in my quick contact form below and we will get back to you within the day.

Investment Schemes: Company and Investor Perspectives

At Egan Roberts we provide year round tax advice on income tax, capital gains tax, inheritance tax trust and estates and non-domiciliary tax issues.
If you are interested in growing your business or making an investment, the below investment schemes may be available to you.

Enterprise Investment Scheme (EIS)

The company’s perspective

An EIS raises money for your company to help grow your business.

It offers tax reliefs to individuals who buy new shares in your company.

You can receive up to £5 million per year up to a company lifetime maximum of £12 million. However this does include any amounts received from other venture capital schemes.

Can my company apply?

If your company is less than 10 years old, has less than 250 full time employees and less than £15 million of assets, you may be eligible.

All conditions of application for EIS are set out here.

The investor’s perspective

An investor can receive the following incentives:

  • Income tax relief being 30% of the investment up to a maximum investment of £1 million.
  • Capital gains tax exemptions
  • Inheritance tax exemptions
  • Reinvestment relief
  • Loss relief

Note: If your income tax liability is lower than the 30% relief, you must relinquish the excess relief.

Seed Enterprise Investment Scheme (SEIS)

Similar to the EIS, if your company is less than 2 years old, has less than 25 full time employees and less than £200,000 of assets, you may be able to receive up to £150,000.

All conditions of application for SEIS are set out here.

The investor can receive income tax relief of 50% of their investment up to a maximum investment of £100,000.

Reinvestment relief, loss relief and capital gains tax relief are also available with a SEIS.

An overview of venture capital schemes for investors is available here.

If you would like to get in touch, please use the contact form below, visit our website www.egan.co.uk or call us on 01254 583515.