Directors: Can They Be Furloughed?
When the UK Chancellor announced the Coronavirus Job Retention Scheme on 20 March followed by the Self Employed Income Support Scheme on 27 March, there was one glaring omission – what is the position for directors of small limited companies?
Directors are not deemed to be self-employed individuals under the Companies Act or taxes legislation so they would not qualify for support through SEISS, despite often being registered for Self Assessment with HMRC.
The vast majority of directors in small limited companies are remunerated by way of a mixture of salary and dividends. Quite a lot are paid a modest salary (usually £8,632 per annum in 2019/20) with the balance of their income paid by way of dividends from their company.
The only option left for directors is to seek support under the CJRS. Under this scheme, wages for qualifying employees will be 80% funded by government up to £2,500 per month per employee, covering an initial period of 3 months.
However, the big question that arose was this – can a director be ‘furloughed’?
First Reaction
Initial thoughts across the accounting community were that it would be difficult for directors to be furloughed, given the requirement that furloughed workers do not undertake ANY work for their employer. Directors will most likely need to keep doing some work in order to ensure the company survives the economic impact of the Coronavirus pandemic.
It was agreed that it would be possible for directors to be furloughed provided that at least one director remains ‘unfurloughed’ and all roles and tasks are clearly defined. For sole director companies, the position seemed quite bleak.
Current Position
HM Treasury have made the position for directors somewhat clearer since 27 March. Directors can be furloughed if the company has effectively closed up for the foreseeable future.
Furthermore, Ben Kerry of HM Treasury publicly stated to a CBI webinar that directors could be furloughed whilst continuing to fulfill their statutory obligations. This would mean certain companies can continue to operate in a very reduced capacity but allowing directors to obtain support under the Job Retention Scheme. Directors could carry out certain tasks to protect the company’s longer term interests but allow themselves to be furloughed.
Care must be taken before deciding on a director being furloughed and each case will be assessed on its own merits. Proper records of such decisions and the activities of directors should be maintained for future reference in the event that HMRC decide to inspect such claims.
The commentary above is not meant to be taken literally for each and every case. You may need to speak to your accountant and/or legal advisor before making any claim for furloughed directors under CJRS. We cannot be held liable for any reliance placed on the notes above or action taken therefrom.
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