As office holders, salaried company directors can be furloughed and receive payment from the Job Retention Scheme like other employees.
To claim under the scheme, the individual must meet the usual employee criteria for the scheme, including having been on the payroll at 19 March 2020.
An important aspect of the scheme is that they must not undertake work of any kind for the company during this time.
The only exception to this is for statutory duties of the director, but this exception does not extend to anything designed to improve the financial performance of the business such as trying to obtain new customers/orders, general management of the business etc.
As a result, it is harder for a director to demonstrate that they have not undertaken any work, particularly if they are the sole director.
To fulfil the normal duties as a director of a limited company, it may be necessary for a sole director to notify all suppliers, customers and other business contacts that the business has been suspended pending the end of the Coronavirus crisis.
Rather than do this, most directors will want to use this time working to ensure the business survives the outbreak or work on improving the business so that when trading recommences, the business recovers quickly as there will be opportunities when lockdown is eased.
In these circumstances, furloughing is not permitted.
Where some directors, but not all, are furloughed, some legal amendments may be required to reflect the position and protect the directors.
These include a directors’ meeting to agree the terms of the furlough and rights and responsibilities during this period, so everyone is aware of the risks they are potentially liable to. The meeting should be carefully minuted to protect all parties. Care should also be taken to ensure enough directors remain to form a quorum so the company can continue functioning.
Seeking professional advice is strongly recommended before a director is furloughed.
Will the director benefit from being furloughed?
To claim under the scheme, the individual must meet the usual employee criteria for the scheme, including having been on the payroll at 19 March 2020.
An important aspect of the scheme is that they must not undertake work of any kind for the company during this time.
The only exception to this is for statutory duties of the director, but this exception does not extend to anything designed to improve the financial performance of the business such as trying to obtain new customers/orders, general management of the business etc.
As a result, it is harder for a director to demonstrate that they have not undertaken any work, particularly if they are the sole director.
To fulfil the normal duties as a director of a limited company, it may be necessary for a sole director to notify all suppliers, customers and other business contacts that the business has been suspended pending the end of the Coronavirus crisis.
Rather than do this, most directors will want to use this time working to ensure the business survives the outbreak or work on improving the business so that when trading recommences, the business recovers quickly as there will be opportunities when lockdown is eased.
In these circumstances, furloughing is not permitted.
Where some directors, but not all, are furloughed, some legal amendments may be required to reflect the position and protect the directors.
These include a directors’ meeting to agree the terms of the furlough and rights and responsibilities during this period, so everyone is aware of the risks they are potentially liable to. The meeting should be carefully minuted to protect all parties. Care should also be taken to ensure enough directors remain to form a quorum so the company can continue functioning.
Seeking professional advice is strongly recommended before a director is furloughed.
Will the director benefit from being furloughed?
Any payments under the scheme are limited to 80% of PAYE income to a limit of £2,500.
It does not cover any dividend income the director may receive, or loans from the company to the director that are later cleared through say, dividends.
This may place the director in a difficult position as they won’t qualify for the self-employed scheme either.
As a director, you also have a legal responsibility to the company creditors and to safeguard company assets if you believe that it is insolvent or about to become insolvent.
From a personal perspective, you will need to ensure that the company continues to have the necessary funds available to provide you with an income.
There are several Government schemes available that will help with your company cashflow including:
This may place the director in a difficult position as they won’t qualify for the self-employed scheme either.
As a director, you also have a legal responsibility to the company creditors and to safeguard company assets if you believe that it is insolvent or about to become insolvent.
From a personal perspective, you will need to ensure that the company continues to have the necessary funds available to provide you with an income.
There are several Government schemes available that will help with your company cashflow including:
· delaying tax and VAT payments to HMRC
There will be the practical steps of managing the normal everyday cashflow of collecting debtors and paying creditors, and there maybe some forbearance available from some of your suppliers.
You may also be able to take personal action to reduce the level of funds you need to draw from the business, for example applying to suspend personal mortgage repayments, car finance etc.
This could be an important time to review your personal finances to see where savings could be made and remove items that aren’t essential to help you get through the current crisis.
Harrisons Business Rescue can help review the status of your limited company as well as your own finances and work with you to find a solution to get you through the current crisis, and hopefully make the most of the new opportunities that will be created once the lockdown is lifted fully.
You may also be able to take personal action to reduce the level of funds you need to draw from the business, for example applying to suspend personal mortgage repayments, car finance etc.
This could be an important time to review your personal finances to see where savings could be made and remove items that aren’t essential to help you get through the current crisis.
Harrisons Business Rescue can help review the status of your limited company as well as your own finances and work with you to find a solution to get you through the current crisis, and hopefully make the most of the new opportunities that will be created once the lockdown is lifted fully.
On our website, here we have a number of news articles covering personal and business finance as well as regular items relating to funding and support from Government due to the coronavirus crisis.
