Limited Coronavirus support for company directors
Following the recent Government announcements of unprecedented financial support packages for both employees (Job Retention Scheme) and the self-employed (Self Employment Income Support Scheme) – both of which essentially cover 80% of earnings up to £2,500 per month – it has become apparent in recent days that neither scheme provides sufficient support for directors of limited companies.
Whilst the directors of personal service companies, and other one-person companies, might consider themselves self-employed, as company directors technically they are not. So their only source of financial support is the Job Retention Scheme, under which up to 80% of their normal salary can be claimed (subject to a £2,500 monthly cap), provided they furlough themselves and stop working.
However, most such directors will typically take a tax efficient combination of a small salary and dividends from the company. But dividends are not included in the JRS calculation – only the salary. For many directors who have paid themselves a gross salary of £8,632 this tax year, that’s £719 per month of which 80% is just £575 per month.
But whilst these directors are eligible in principle for the Job Retention Scheme, this is on the basis that they can actually be furloughed – i.e. stop working altogether. Our current understanding is that they can continue to undertake statutory duties but cannot perform any other work for the company.
Statutory duties should include filing returns, dealing with VAT, PAYE and Company Accounts, maintaining records and attending board meetings. But they will exclude any activities undertaken that could create revenue for the company.
The finer details of this scheme continue to be refined by the Government, so we await further clarification from HMRC for those smaller companies who appear to be falling between the two schemes.