Coronavirus Job Retention Scheme (CJRS) – Company Directors Update
Details of the CJRS are gradually becoming clearer as the Government updates its guidance on the scheme. In the latest guidance, the position of company directors is addressed, which is very welcome. It has been confirmed that in principle directors are eligible to be ‘furloughed’.
As a reminder, when an employee is put on ‘furlough’ he continues to be paid by the company, which can claim a grant under the CJRS of 80% of their wages (as at 28 February 2020, according to the company payroll) up to £2,500 per month.
As with any other employee, ‘furlough’ means the director must not undertake any work for, or on behalf of the company. However, it has been confirmed that directors are allowed to carry out particular duties to fulfil the statutory obligations they owe to their company, provided ‘they do no more than would reasonably be judged necessary for that purpose’. Statutory duties are very limited and would include for example the approval and filing of Accounts at Companies House. Unfortunately the updated guidance still does not specify exactly what duties the government regards as within these ‘statutory duties’ and employment lawyers are still questioning some extended interpretations of this term.
Although for employees it may be straightforward to set a date when they no longer do any work for the company, for a director that date may be some time after the company has effectively ceased or reduced its trading. There will be a period of time during the wind down when the director will of necessity still be involved in managing staff issues, looking after finances and dealing with customers, suppliers and professional advisers, whether or not there is an expectation that trade will recommence. Such services are normally accepted as being over and above their statutory duties and it is only when all such activity has stopped that the director will become eligible for furlough.
Companies with more than one director eg a husband and wife should consider delegating responsibility for running the company to one of them, leaving the other with no operational tasks so they can be furloughed. Such a decision must be made by the board of directors and documented.
It has been confirmed that salaried individuals who are directors of their own personal service companies can be furloughed. Such companies rely on the director himself to generate income through services he provides to clients and usually do not have staff or premises. There is therefore likely to be very little for the director to do on behalf of the company if business ceases, making the decision to furlough himself somewhat easier. Accounting or banking tasks can usually be automated or outsourced.
Many owner managed companies pay their directors a small salary, with their income topped up by dividends. Dividends are not eligible for the grant, so the grant will only represent a small proportion of the income the owner manager may have been used to receiving. Nevertheless it is worthwhile making a claim. This is particularly relevant for contracted workers, who might operate through their own personal service company and perhaps are caught by the off-payroll working rules, which seems anomalous, as their income is charged at source under PAYE but paid to their company, but this is an unfortunate consequence of the way this particular relief is structured.
It is important to remember that, to be eligible, the company must continue to pay furloughed staff or directors a salary of at least the amount of the grant. It is expected that the grant will be available by the end of April.