Support for company directors and shareholders impacted by coronavirus
Important update re directors as at 6 April 2020
We've covered the financial support available for self-employed individuals affected by the coronavirus previously. In response to numerous enquiries we'll now cover the potential support for company directors and shareholders impacted by coronavirus.
Numerous small companies across the UK are run by a single or two directors and have no other employees. So what available support for company directors and shareholders impacted by coronavirus is being offered by the government?
We set out below the salient points to consider:
Can a director be furloughed?
If, you're a director on the payroll, engaged under an existing written or verbal employment contract on 28 February 2020, and your role as an employee or director are not required due to the affects of the ongoing crisis, the company may furlough you.
What about director/shareholder companies?
As a starting point it would be difficult for a sole director to be furloughed from their usual duties. This is because a company cannot operate without it's director and all directors have a responsibility to act in their company's interests.
Most companies will require someone available, to handle day to day admin, such as bookkeeping, tax filings and banking etc. However it could be argued that some or all of these duties may already be performed by an external bookkeeper.
Bearing this in mind there is no reason why a company might not go into a temporary coronavirus dormancy. This would mean meaning that the director would have no day to day duties during that period. However we would caution against recommending a sole director is laid off completely.
Where a sole director is concerned, perhaps part-furloughing is possible and duties in working as a company officer could be agreed at a reduced rate of say 1 day per week. Duties as an employee would then by furloughed. You would need some documentary evidence to support this.
It would also be particularly important that there was no contradictory information which suggested a sole director was continuing in an administrative capacity.
Where there are two directors in a family company who are genuinely actively involved in running the business it may be possible for one director to be furloughed.
HM Revenue have indicated that an employee working on reduced hours, or for reduced pay will not be eligible for the scheme without contractual modification.
HM Revenue's published viewpoint goes against the idea that a company could go into a period of hibernation (see above). However, arguably it's up to the employer to agree the terms of any modification to an employment contact. Furthermore the directors are required to act in the best interests of the company.
Following the details above it appears that HM Revenue have updated their guidance to indicate that directors can be furloughed - see here
What about dividends which form part of director's remuneration?
Unfortunately there is no scheme currently in place to provide financial support where the amount of dividend available to a director/shareholder is impacted by the coronavirus pandemic.
If the company decided to change the terms of the director's contract in order to pay a salary instead of a dividend, this must be agreed contractually between the company and its director.
If your company decides to change the terms of your director's contract in order to pay a salary instead of a dividend, this must be agreed contractually between your company and it's director. However we would add a note of caution as this could be perceived by HM Revenue as manipulation of the rules
For more useful information, check out our Ebooks here.
And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].
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