The government has offered updated guidance for Company Directors that may need to furlough themselves ad take advantage of the coronavirus job retention scheme (CJRS).
How Furlough could work for Directors of Limited Companies
To be eligible for the CJRS, the individual must be furloughed and crucially, cannot undertake any work for the company.
However, in the case of Directors, work undertaken to meet statutory requirements is exempted.
Put simply, a statutory requirement is anything legal that a Director would need to do, to be compliant with Companies Act 2006.
Examples of statutory requirements would include the filing of Accounts and Tax Returns, the payment of Staff, ensuring the Director is up to date with current laws, checking the business premises, etc.
If a Company Director is only undertaking these kinds of roles then they will be able to furlough themselves and receive 80% of their salary from the government.
If a Director still undertakes roles such as chasing debtors, negotiating with suppliers, advertising or marketing (including posting on social media), then they would not be able to furlough themselves.
A simple method to determine whether an action may result in a Director becoming ineligible for furlough would be if to see if the aim of the action is to produce income for the business, or whether the aim is to meet a legal obligation.
Although this guidance has now been issued, we are still waiting on further clarifications from the government as many parts of this remain a grey area.
It would be our recommendation, in the case of company directors who are eligible under the CJRS, to continue to report their full salaries, and receive 80% of their salaries in the form of grant from HMRC. Their companies can then pay them the additional 20%.
Should the company not be able to immediately pay the remaining 20%, it can be paid within 9 months, when the business is more liquid.
This will ensure the Director continues to use their personal allowance in the most tax efficient manner for the new tax year.
Submission of Furloughed Staff Information
The submission portal for claiming CJRS will run in 3-weekly increments, as the minimum period an employee can be furloughed is 3 three weeks.
Do note, an employee can be un-furloughed and put back into the workforce after the minimum three-week period is over. They can then be re-furloughed if necessary.
We recommend employers keep detailed records of how they are calculating furlough pay. This will also act as evidence if HMRC audits their claim.
Employers should also keep copies of correspondence with employees who have been furloughed, and may need to seek additional employment law support on this.
We have not yet had sight of the CJRS portal so we do not know what information specifically will be required, but will update you as soon as we have more information.