Coronavirus Job Retention Scheme – update for directors
HMRC’s guidance on the Coronavirus Job Retention Scheme has recently been updated. HMRC will reimburse 80% of furloughed workers' wage costs, capped at £2,500 per month per employee. The scheme will run for at least 3 months, backdated from 1 March 2020, but will be extended if necessary.
Company directors and other office holders can be furloughed under the scheme. However, only PAYE income – generally salary – can be furloughed, and so the common practice of taking most of directors' earnings as dividends will limit a director's claims to salary only.
The guidance is clear that where one or more individual directors are furloughed 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.
Under the scheme no work can be undertaken by furloughed employees who remain technically employed by the company. In many scenarios, especially for sole directors, this would be untenable as all business would have to be technically suspended.
The guidance does make it clear that company directors can do what is reasonably necessary to fulfil the statutory obligations they owe to their company. These actions are not specified but do not include any work undertaken to generate commercial revenue or provide services to or on behalf of their company.
These measures also apply to salaried individuals who are directors of their own Personal Service Company (PSC). Salaried Members of Limited Liability Partnerships (LLPs) are also entitled to be furloughed but should refer to the terms of their LLP agreement in the first instance.