The Coronavirus Job Retention Scheme (JRS) and the Shareholder/Director: An opinion
Monday, 30 March 2020
Government guidance suggests that if you’re the director of your own company you may benefit from the Job Retention Scheme (JRS) in relation to salary which is paid to you through PAYE. However, many such directors will often pay themselves comparatively little, preferring instead to withdraw profits via dividends, which restricts its value.
Nevertheless, in focusing on the salary element of a director’s income, and the ability to claim under the JRS, there are other questions as to entitlement. This is primarily because it’s a condition of the Job Retention Scheme that a director, like any other employee, is ‘furloughed’ such that they no longer perform any duties for the company.
This appears problematic, given the ongoing duties that a director owes to the company under the Companies Act and otherwise. They may, in that role, find that they have to continue undertaking some tasks, even if only administrative.
However, in our view, this should not preclude a JRS claim, to the extent that the salary relates to a genuinely separate employment role. If it does, it may be worth considering furloughing that role and documenting it as such in accordance with guidance. We would, however, counsel that you should also take employment law advice in relation to a director’s written or implied service agreement given the wider implications of its existence, including entitlements to national minimum wage and pensions auto enrolment, and that this could have longer term impact beyond the period of any furlough.
Can you furlough a director for the purposes of the JRS otherwise than when a formal service agreement exists?
HMRC guidance to date doesn’t make the differentiation we have made, therefore it remains to be seen. If a claim is contemplated, it would still be wise to document an agreement between the director and the company for which the director has ceased to perform any duties, and to document that they have been furloughed.
To the extent that the company has more than one director, it’s perhaps also easier to evidence that in furloughing one director that others remain to carry out any ongoing tasks.
Ultimately, however, whether HMRC will accept a claim by a single director or all the directors that they have been effectively furloughed will depend on the detailed rules of the Job Retention Scheme and their interpretation of them, all of which is still evolving.
We recognise that directors who do currently draw a wage from their company, and want to consider a claim under the JRS, may wish to proceed on the basis that they are no longer able to carry out their day-to-day role due to the curtailment of business. If so, we advise that they make full disclosure to HMRC of their circumstances when doing so and bear in mind that HMRC have stated their right to retrospectively audit all aspects of a claim.
The above reflects our opinion based on information currently available. HMRC have, however, said that guidance will be updated as the JRS is further developed, and in line with any further government announcements. To that extent, we recommend that when implementing any arrangements, you check for any updates.
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