- A director or company officer is an employee for PAYE purposes.
- A director cannot claim the COVID-19 Grant for the Self Employed by holding the office of a director.
- Although it may be possible for a company to furlough a director under the COVID-19 Job Retention Scheme. There are potential issues for small companies to consider.
- Company law dictates that the director should be engaged. Under the terms of a service contract with their company.
- A service contract does not create an employment contract.
- Many directors/shareholders remunerated in the most cost-efficient method for their company. a mixture of low salary topped up by dividends.
Pre-COVID-19 wrongful trading rule
- If the company becomes insolvent. The director must immediately take advice from a qualified insolvency practitioner.
- As a director, you should not allow the company to continue to trade on whilst you are insolvent. you become liable for your company’s debts, including amounts due to HMRC.
What are the new measures?
Furloughing for normally employee type duties:
- If, as a director you were on the payroll, engaged under an existing written or verbal employment contract on 28 February 2020, and your services, in performing the duties expected of you as an employee or director are not required due to the effects of the ongoing crisis, the company may furlough you.
Can you furlough a sole director?
- In deciding whether to furlough a director in respect of their duties as a company officer. It’s assumed that the director is never furloughed for their duties as an officer of the company. A company cannot operate without its director and all directors have ongoing fiduciary duties to their companies.
- Most companies will need to have someone on hand. To handle on-going administration such as post, bookkeeping, tax filings, and banking. We see no reason why a company cannot go into a ‘COVID-19 hibernation’. This means that the director would have no day to day employment type duties during that period. But we are uneasy recommending that a sole director lay off completely. They’re looking forward to the duties as a statutory. In such cases part-furloughing is possible: duties as an employee would be furlough. Statutory duties would not furlough. In most cases, statutory duties are not onerous. Contracts would evidence by two contracts: a service contract and an employment contract.
- HMRC states:‘If an employee is working, but on reduced hours, or for reduced pay, they’ll never be eligible for this scheme and you’ll continue to pay the employee through your payroll. Pay their salary subject to the terms of the employment contract you agreed on.’
- It’s for the employer to agree on the terms of any modification to an employment contract and for the directors to act in the best interests of the company. This may include furloughing any member of staff.
Salary or dividends?
- There’s no scheme in place for the government to provide financial support to shareholders where the amount of their dividend is affected by the COVID-19 crisis.
- If a company can no longer afford to pay dividends, it may be insolvent, directors should take appropriate advice.
- If the company decides to change the terms of the contract in order to pay a salary instead of a dividend, a contract must take place between the company and the director. What we’d normally expect to see is a service contract that details the duties of a director as a company officer and an employment contract which covers duties as an employee.
The furloughed employee needs to be remembered. The employer will not allow working during the furlough era. Depending on the type of business, a company director may well need to work in some statutory capacity during even a period of closure of the business.
I would like to Furloughed myself or my employees:
Additional support for small companies
- Business rates holiday – These holidays only take place for retail, hospitality, and Leisure during the 2020-2021 tax year. This applies to all businesses in these sectors. For more information please visit HMRC website
- Cash Grant of up to £25,000 – It will grant to a business in these sectors with a rateable value from £ 15,000 to £51,000 (in England). Small businesses with a rateable value below £15,000 (in England) will receive a cash grant of £10,000. For more information click here
- Job Retention Scheme – Furloughed workers – 80% of the salary
- Support for Self-employed individuals – 80% grant, based on your last 3 years’ profits.
- Business Interruption Loan Scheme – For more information please visit
- VAT and self-assessment payment deferral – Under the government’s proposals VAT payments due before 30 June 2020. There’s no need to make it until March 31, 2021. Self-assessment payments are due on the account on 31 July 2020. There’s no need to make it until March 31, 2021. There’s no requirement but direct debit mandates must be cancelled. For more information please click here
- Statutory Sick Pay Rebate – The Government will bring forward legislation to allow small and medium-sized businesses to reclaim Statutory Sick Pay (SSP) paid for staff sickness absence due to coronavirus. This refund will cover up to 2 weeks’ SSP per eligible employee. These include employees who’ve taken some days off due to coronavirus.
- Covid-19 Corporate Financing Facility – On March 17, HM Treasury announced a number of measures designed to support businesses. The chancellor set out a package of temporary, timely, and targeted measures to support public services, people. The businesses through this period of disruption were caused by Covid-19.
- Business Rates Holiday for Nurseries – Nurseries in England don’t have to pay business rates for the 2020-21 tax year.