COVID-19 update 31-03-20
Can Directors furlough themselves?
This is advice for Directors of limited companies only.
There have been a number of enquiries concerning the issue of whether or not directors can furlough themselves, and a lot of conflicting views around it. However, having reviewed several articles and commentary on the subject, our view is as below. However, we have to stress that this is our current view and is, to the best of our knowledge and belief, based on information available at the moment. Our view may change once the formal regulations and the portal are made available in April.
Our view…
A director can furlough himself, and providing he/she is not generating revenues for the business, meets the criteria and will be able to make a claim under the Job Retention Scheme (JRS). In doing so this does not preclude him/her from undertaking his/her statutory responsibilities i.e. admin/looking for work etc…
Therefore, this would only apply where the director is not working on behalf of the business e.g. where a contract for services has been terminated and therefore no income is being generated as a result of covid-19. If you are working, even if on a reduced basis, you are still generating income and therefore you are NOT able to furlough yourself.
A great many of you will be on annual payroll schemes that have only just been run. Our opinion is that for those paid for the first time, it will not be possible to make a claim under the JRS because you will not have any history of payments under PAYE. But, for those that have been paid regularly (whether annually/quarterly), then a claim can be made based on 80% of the small salary element of your profit extraction (dividends cannot be included in any claim).
We would suggest that any claim is based on the salary paid for the whole of 19-20. Therefore this would be 80% of 1/12th of the 19-20 salary, per month (or part thereof), while on furlough.
For annual payroll schemes, our view is that even though it may not have been paid as of 28.2.20; 1) you had accrued salary of 11/12ths to that point, 2) you had been paid in the previous year through payroll, and 3) you did receive a salary in March 2020 on the same basis. We cannot see anything wrong with this in principle.
The main point we should stress is that this is NOT an opportunity to artificially increase your salary and claim the full £2,500 per month. This is because the reference period is the 12 months to 28.2.20. We believe that any artificial increase would be viewed as “fraud”, and we cannot be party to that.
In terms of furlough process, below is a pro-forma letter that you should prepare, sign and date, and email back to the partner responsible for your affairs. The date to use for the letter should be the date that you stopped generating income for the business. So, if you were out of work on 1.3.20 or before, the date should be 1.3.20. Clearly, this cannot pre-date any other employees’ furlough date.
Of course, if you are fortunate enough to find a new contract in the meantime, your furlough period will end at that point. In which case, please let us know so that we can advise what happens next.
We will update you as regularly as we can, but as stated above, the advice/guidance is fast-moving. The measures have been introduced at great speed and unfortunately there will be winners and losers as a result.