with commentary from Forbes Dawson
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.
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
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.
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.
Sir Graham Brady MP