Last month the Chancellor announced the Coronavirus Job Retention Scheme, a temporary initiative that allows employers to access financial support to pay part of their employees’ wages during the coronavirus (Covid-19) crisis. Since then, HMRC has released further information to clarify how the scheme works for limited company directors who are employees of their own companies.
A reminder of the Coronavirus Job Retention Scheme
Under the Coronavirus Job Retention Scheme, HMRC will refund 80% of employees' wage costs up to a maximum of £2,500 per month. Employees who are paid through the scheme will become classified as ‘furloughed workers’. One of the conditions of the Coronavirus Job Scheme is that furloughed workers - who remain employed during the furlough period - should not undertake work for their employer while being paid through the scheme. The details that were initially announced posed a number of questions for limited company directors and, in response, HMRC has now provided clarity on two major issues.
The scheme only covers a company director’s salary
The salaries of limited company directors who are employees of their companies will be covered by the Coronavirus Job Retention Scheme. However, HMRC has confirmed that dividends won’t qualify and that company directors will only be able to claim 80% of their salaried wage.
Company directors can only perform statutory duties while they are furloughed
Company directors have statutory duties to perform, which are set out in the Companies Act 2006. The ‘general duties’ outlined in the legislation are:
- Duty to act within powers
- Duty to promote the success of the company
- Duty to exercise independent judgement
- Duty to exercise reasonable care, skill and diligence
- Duty to avoid conflicts of interest
- Duty not to accept benefits from third parties
- Duty to declare interest in proposed transaction or arrangement
While other types of employees are unable to carry out work for their employer as a condition of being furloughed, HMRC has clarified that company directors can be furloughed and continue to undertake their statutory duties for the company, “provided they do no more than would reasonably be judged necessary for that purpose”. The guidance also states that furloughed company directors “should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provide services to or on behalf of their company”.
Although no specific guidance from HMRC has been published, as filing company accounts and confirmation statements are statutory duties, company directors should still be able to file these when they are furloughed.
Functionality to support furloughed workers in FreeAgent’s payroll
HMRC has only recently released detailed guidance on how to calculate the amount that employers can claim for furloughed employees’ salaries. Here at FreeAgent, we’ve started building functionality to support employers in performing that calculation and our aim is to make it available as soon as possible. As soon as the functionality is live, we’ll announce it on our blog.
To learn more about what the coronavirus crisis could mean for your business and to stay up to date with the latest news, take a look at our small business coronavirus hub.
Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.