COVID-19 Response: Directors and the Coronavirus Job Retention Scheme (last updated 28 April 2020)
The major support packages for employees and the self-employed were announced during March in the form of the Coronavirus Job Retention Scheme (CJRS) and the Self-Employed Income Support Scheme (SEISS). In the meantime the directors of small limited companies had been left in something of a limbo with neither package seeming to cover them. On 28 March we posted our own thoughts that directors could be included in the CJRS and on 4 April this was confirmed as government policy.
Therefore small company directors can be furloughed and included on a CJRS grant claim. The guidance now states:
"As office holders, salaried company directors are eligible to be furloughed and receive support through this scheme. Company directors owe duties to their company which are set out in the Companies Act 2006. Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, the board can decide that such directors should be furloughed. Where one or more individual directors’ furlough is so decided by the board, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned.
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, i.e. 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)."
The major stumbling block was that directors will remain responsible for the running of their company even when it is not trading so how could they be said to be genuinely furloughed and not carrying out any company business? This has been covered by asserting that directors will be allowed to continue undertaking their 'statutory duties' while furloughed.
The strict definition of 'statutory duties' according to Companies House is more of a list of principles, including promoting the success of the company, exercising independent judgement, acting within the company's constitution, exercising reasonable care, and avoiding conflicts of interest. As can be seen from the new CJRS guidance this definition is being loosened for these purposes to include any administrative activity that is not specifically revenue generating or providing services to or for the company. This would allow directors to maintain the company records, run payroll, communicate with accountants, banks and other advisors, submit grant claims (as grants are not strictly revenue), arrange insurance, etc.
Activities that generate income or form part of a service to a customer, such as going on emergency call-outs, manning a help line, engaging in business promotion including social media, negotiating contracts, sending quotes to customers or discussing ongoing projects, would invalidate this status. Please note also that the other main conditions of the CJRS would still apply; see our separate news page on these, including the 3 week qualifying period. We would also suggest that the effective date of the furlough could not be any earlier than the date that the rest of the employees were furloughed (and be no earlier than 20 March 2020).
Finally, and perhaps most importantly, please note that the claim will be limited to 80% of the director's salary that was processed via PAYE for the month of February 2020 (unless you are in the unusual situation where the director's pay was variable). The majority of small company directors will typically take a small salary set around the personal allowance or NIC threshold and extract the majority of company profits via dividend. The dividend element is not covered under the CJRS or any of the other support programmes.
A typical example would be a salary set at the NIC limit for 2019/20 of £8,632. This will mean monthly gross pay of £719 and a claim for 80% of that salary for each month of furlough would amount to £575. If you are considering furlough but believe that you can generate more than £575 worth of value for the company each month by remaining active and conducting business promotion and other client-facing work, even remotely, then we'd suggest that you go for it, but don't claim yourself as furloughed at the same time!
If you have any questions on this issue or would like to discuss processing a CJRS claim (CMM clients only) please get in touch.