HMRC have begun issuing regular updates to their initial guidance as we all begin to question how and to whom they apply. Helpfully the Government are responding quickly and we are updating our guidance as they do. An updated version of the guidance relating to the Government’s Job Retention Scheme and furlough has been published offering some additional clarification, you can read our latest article on this here.
The initial guidance was silent on how it would apply to Directors. Why is this an issue? Well, consider the single shareholder and director company offering consultancy services. If the Director puts themselves on furlough, they are not permitted to do any work. This may not be a problem if there is no work to do but what is ‘work’?
Directors have fiduciary responsibilities. They have to fulfill certain obligations throughout the year such as filing accounts and confirmation statements. Moreover, a company must have an active Director at all times. Clearly, if these are considered ‘work’ then it would not be possible for a such a Director to furlough themselves and qualify for the payment under the job retention scheme.
The Government have listened to these concerns and updated their guidance which says:
“Where furloughed Directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so 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.”
This also applies to salaried individuals who are Directors of their own personal service company (PSC). This therefore allows Directors to furlough themselves even if they are the sole director of the company.
There are a few matters that you need to consider if you are affected:
- Does the Director receive a salary? If not, then they cannot claim the grant from the Government as 80% of £nil is £nil
- Dividends do not qualify as salary
- Where the Director is paid a salary, the benefit is capped to 80% of the gross, limited to £2,500 a month
- It is possible that the company operates an annual payroll. This may need to be changed to a monthly payroll to claim the grant
- The Director[s] must prepare a board minute and retain a copy of that minute furloughing the Director
We are here to help, so please contact us if you would like to discuss this or any other measure that the Government has announced. For more information on the Job Retention Scheme, please read our original article.
Please click here to view all articles relating to furlough and Coronavirus Job Retention Scheme guidance.