Measures that effect directors regarding the impact of the COVID-19 are highlighted below.
Coronavirus Job Retention Scheme
The Coronavirus Job Retention Scheme allows all UK employers to access a financial subsidy worth 80% of their workers’ wage costs up to a cap of £2,500 per worker per month. Employers would need to class their employees as ‘Furloughed Workers’ to be eligible for the scheme. See our dedicated Employers section of our website to understand more.
There had been some confusion regarding whether a director can be classed as a ‘Furloughed Worker.’ There has now been some guidance on the matter, but as this is emerging guidance, it is far from thorough. What we know so far:
Can a director be furloughed?
Government guidance has now been updated to say, “salaried company directors are eligible to be furloughed and receive support through this scheme.”
Can the director work?
Any act that provides a service to or generates revenue for the company would be considered employment related work and so the director could not be furloughed. Furloughed directors can carry out specific duties to fulfil their statutory obligations, for example essential affairs such as the daily post, bookkeeping, tax returns and banking.
What if a director just reduces their hours or pay?
If the director is still working, even for reduced hours or pay, they will not be able to claim via this scheme.
What can be claimed?
You can claim a grant of up to 80% of their ‘regular wage’ or £2,500 (whichever is lower). This claim can be backdated to 1 March 2020 but would only be available from the date the director is furloughed. The scheme will last for at least three months.
Typically, sole directors and directors of owner managed businesses take some remuneration through PAYE by way of salary, usually at a level just above the NIC threshold, with the remainder taken as dividends. Any job retention scheme claim would be based on the PAYE salary and dividends are not included as part of the amount that can be claimed.
Could a director increase the amounts claimed by introducing a contract of employment?
The grant is based on an employee’s salary as at 28 February 2020, which is already reported to HMRC. Any retrospective variation would not be possible and could expose the director to accusations of manipulating a claim, we anticipate very harsh retrospective action on anyone that is found to have manipulated claims.
How is this claimed?
The directors might need to take legal advice on this, but as a minimum we suggest the following procedure:
- Decide what date the director(s) were furloughed (this can be 01 March 2020 at the earliest).
- Hold a board meeting between directors. This can be held as a web meeting or phone call. This should be documented via Board Minutes that are retained in the company records, we have an example that can be used in our downloadable resources section.
- That the company writes a letter advising the director(s) that they have been ‘furloughed’ and a copy of this should be kept on the file to support any claim, we have an example that can be used in our downloadable resources section.
- If all directors are being furloughed, you should consider contacting your customers and suppliers to notify them that the business is temporarily being suspended. This will support your case with HMRC, but you should carefully consider any commercial risk.
- Once the HMRC portal is opened a claim can be made. See our article how to make a Coronavirus Job Retention Scheme grant claim to learn more about this.
Deferral of Self-Assessment payment
The Payment on account payable no later than 31 July 2020 will be deferred until 31 January 2021. This is an automatic offer and no application is required and no penalties or interest for late payment will be charged in the deferral period.
Statutory Sick Pay (“SSP”)
The Coronavirus Statutory Sick Pay Rebate Scheme will repay small and medium sized business employers the current rate of SSP (£94.25) that they pay to current or former employees for periods of sickness starting on or after 13 March 2020. Directors can claim SSP, just like any other employee.
See our dedicated Employers section of our website to understand more.
HMRC delays introduction of off-payroll rules to private sector (IR35)
The Government has delayed new rules affecting contractors working for the private sector, directly or through an agency, that were set to be introduced on 6 April 2020. The rules coming into effect has been deferred until 6 April 2021.
Changes to insolvency rules proposed to support businesses impacted by COVID-19
The “wrongful trading” insolvency provisions will be suspended as part of new rules, and this will apply retrospectively from 1 March 2020 for three months.
Directors can keep their business running without the threat of personal liability. Without this temporary relaxation, company directors could become personally liable for business debts if they continue to trade when they are uncertain about whether they are able to meet those debts.
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