Coronavirus – Update for Directors

The guidance for the Coronavirus Job Retention Scheme was published last Thursday. (Link and following content updated 6th April 2020 for guidance issued 4th April 2020.)

That guidance does not expressly exclude Directors from being furloughed, and we’ve been trying to get clarification of the position.

The specific line in question states ‘to be eligible for the subsidy, when on furlough, an employee can not undertake work for or on behalf of the organisation. This includes providing services or generating revenue.’

The initial view was that it would be impossible to furlough Directors as they would still need to fulfil statutory obligations, such as filing accounts, and make any payments etc that became due. This seemed to exclude them from the scheme, as that would surely count as ‘work’.

Having seen the guidance and consulted with others in the industry, we’re now comfortable that Directors CAN furlough themselves from the business, but only on the following basis:

• That they will receive only 80% of their usual small salary amount. This does NOT include any dividend amounts, which are based on the profits of the business.
• Whilst furloughed Directors cannot ‘provide services’ or undertake any ‘income generating’ work on behalf of the company.

This was the biggest area of doubt for us and what has caused the delay in notifying you!

Having subsequently heard the opinion of an esteemed Employment Law Barrister, we are recommending the Directors do NOT furlough themselves unless there is more than one Director, and it is agreed that those that are furloughed will adhere strictly to the guidance, whilst another continues to handle any ‘work’ for the business.

Our reasoning is based on the current information available, and may of course change as more detail becomes available, and the full legislation is published. In addition:

• Directors have statutory responsibilities, such as filing accounts. These are not deemed as ‘work’, so are outside of the restriction.
• If any Director was furloughed, according to the Barrister mentioned above, simply replying to an email from a customer or business contact would be classed as work. Even if a business is not trading, the chances of communications being received from suppliers, customers, banks or other contacts are high.
• HMRC have the right to go through any or all records of the business, should they choose to, and examine whether ‘work’ was completed during any furlough period.

Given the unprecedented situation we all currently find ourselves in, we would suggest that most Directors would prefer to be able to plan and prepare to come out of this period in as positive a way as possible. This should include having a strategy for regaining any lost ground, reconnecting with all contacts and customers, and ensuring that a new marketing plan be ready to go as soon as is possible.

This is not possible if you are forced to sit at home during this period and cannot do anything!

This is going to be a decision that will vary for every company, and potentially every Director. If you’re unsure of how the guidance applies to you, please get in touch. We’re very happy to chat it through. Some Directors may decide to go ahead anyway, and that the risk is outweighed by the benefits, but it owed not be our recommendation.

If you do decide to furlough yourself, or another Director, you will need to record that decision in the company’s records, and communicate that decision to the Director concerned in writing. This confirmation letter can be backdated to 1st March if appropriate.

Do check the guidance and make sure that you can legitimately and comfortably adhere to the content.

A portal will be developed by HMRC through which a claim can be made for any 80% amounts. This is expected to be available by the end of April.

NB: The furlough payment covers not just the 80% of the salary but also the minimum auto-enrolment pension scheme contributions and the employers National Insurance contributions, IF those come in below the £2,500 limit.

One other point came out of the guidance; whilst furloughed, staff can complete training. If you think it would be a good opportunity to upskill your team or yourself whilst furloughed, now might be the time!