Coronavirus financial support for directors and self-employed confirmed
Posted on 28th March 2020
Following the announcement of financial support for the self-employed on Thursday, a large number of limited company directors withdrawing their income as salary and dividends are now wondering where this leaves them.
Ultimately, the issue comes down to you falling between the two simple definitions of employed and self-employed. As a director, you are effectively employed via your own limited company, and this is where the difficulty arises.
Employees are covered by the Coronavirus Job Retention scheme (CJRS) and, if furloughed, will have 80% of their wages paid by the government as announced on Friday 20th March. Click here to find out more about the CJRS.
The self-employed are now covered by the Self-Employed Income Support scheme, and, if eligible, will be paid 80% of their average income per month over the tax years 2016/17, 2017/18 and 2018/19, as announced on Thursday 26th March. Click here to find out more about income support for the self-employed, and more about eligibility.
The majority of our clients are directors who run their businesses tax efficiently - but completely legally - through limited companies, and they were left feeling as though they'd been completely ignored by this latest announcement.
So, how could a director furlough themselves?
The rules of the CJRS state that an employee of a company must be furloughed.
If you are furloughed, this essentially means that you are permitted to be absent from work for a designated period of time. You are not permitted to carry out any work for your employer during this time, nor are you permitted to work for anybody else. For a furlough to come into effect, your employer needs to write to you to officially announce your status as a furloughed employee.
This is where it gets quite tricky for sole directors.
First of all, a sole director would have to write to themselves to furlough themselves, which is a bit odd in itself. But then the next question arises - if you have furloughed yourself, who writes to you to let you know when the company is ready to start conducting business as usual again? If you have furloughed yourself, then technically you wouldn't be permitted to write to yourself to lift the furlough, because you're not supposed to be undertaking any work while you're furloughed.
It also seems to make very little business sense. At present, many small businesses are suffering from the knock-on effects of the coronavirus. Lots of businesses are losing contracts as we speak, and more and more clients and customers are unable to pay their invoices. So surely, during this difficult period, it makes sense for directors to be doing everything they can to continue making money.
Finally, we have confirmation that directors can indeed furlough themselves
It was finally confirmed on Thursday that limited company directors weren't entitled to the Self-Employed Income Support scheme, but that they could claim from the Coronavirus Job Retention scheme.
As always the devil is in the detail, and late Friday evening, it has now been officially confirmed that a director of a limited company - even if they are the only director - can be furloughed and claim 80% of their wages (salary only, not dividend) via the Coronavirus Job Retention Scheme, provided they are only carrying out director duties. This means that you can't carry out any actual "work" for the company at all.
Previously it was unclear if a single director could truly be furloughed as they would need to carry out some small amount of admin to keep the company going (record-keeping, approving VAT returns, approving accounts etc).
Myself and all the accountants in my network have been asking for an exception to be made during the current crisis - and they have listened!
Here's the full statement from Ben Kerry, Head of Labour Markets at HM Treasury:
"With respect to Directors and owner managers, that does not disqualify them from being furloughed so long as they are on PAYE payroll. I understand that they will have some statutory duties and obligations such as filling up their accounts and they will still be allowed to undertake those statutory duties whilst they are being furloughed so that would not count as doing work. So one of the key conditions of the furlough scheme is that the employee is not allowed to work for the employer but if you are the owner-manager and you do have statutory duties then you can continued to undertake those duties while being on furlough."
- Quoted from CBI.org.uk, “Daily Coronavirus Webinar”, 27th March 2020
We will be in touch with our clients to determine if this applies to them and once HMRC set-up the reclaim portal we will claim this for you AT NO EXTRA CHARGE to our clients. We just want to make sure you have the support you need to keep going at this difficult time.
Need urgent advice or support? Book a call with Nicola or try the new government helplines
We understand how scary and uncertain this time is for you, so we are here if you need to speak to us. If you need urgent financial advice, please do not hesitate to book a call here.
Alternatively, a new HMRC helpline has been launched to help businesses concerned about paying their taxes due to coronavirus. Some options are agreeing an instalment arrangement, suspending debt collection proceedings and cancelling penalties and interest where you run into administrative difficulties contacting HMRC or paying them directly. If you run a business or are self-employed and are concerned about paying your tax due to coronavirus, you can call HMRC’s helpline for help and advice on 0800 0159 559 and the helpline is open Monday to Friday 08:00-20:00 and Saturday 08:00-16:00. There are likely to be call queues and delays – so patience is a virtue!
There is also a new Business Support Helpline for free advice from the government, which you can see the full details of here.
Check out our dedicated Coronavirus Support Hub here - it's full of 100% free resources which are constantly being updated.
Nicola J Sorrell -
Founder | Xero Champion | IR35 Expert
Tagged as: Coronavirus
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