Can you furlough a Sole Director?
Yes it was confirmed by the CBI – Confederation of British Industry on Friday directly via the treasury that a sole Director or a Director can be furloughed can be covered based on their pay-rolled earnings (eg – Not dividends for owner managed Businesses). They can continue to run their Business in terms of performing statutory duties, but the must not be raising any revenue by performing any other work.
This is because:
- A director or company officer is an employee for PAYE purposes.
- A director cannot claim the COVID-19 Grant for the Self Employed by virtue of holding the office of a director.
- Although it may be possible for a company to furlough a director under the COVID-19 Job Retention Scheme there are potential issues for small companies to consider.
- Company law dictates that director should be engaged under the terms of a service contract with their company.
- A service contract does not automatically create an employment contract.
- Many director/shareholders are remunerated in the most cost efficient method for their company: a mixture of low salary topped up by dividends.
Update – 5th April 2020:
Taken directly from HMRC:
Office holders can be furloughed and receive support through this scheme. The furlough, and any ongoing payment during furlough, will need to be agreed between the office holder and the party who operates PAYE on the income they receive for holding their office. Where the office holder is a company director or member of a Limited Liability Partnership (LLP), the furlough arrangements should be adopted formally as a decision of the company or LLP.
As office holders, salaried company directors are eligible to be furloughed and receive support through this scheme. Company directors owe duties to their company which are set out in the Companies Act 2006. Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, the board can decide that such directors should be furloughed. Where one or more individual directors’ furlough is so decided by the board, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned.
Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose, for instance, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.
This also applies to salaried individuals who are directors of their own personal service company (PSC).
This means – that Directors can be furloughed (including sole Directors) or a board of Directors – all being furloughed leaving the Company without any non-furloughed Directors under the Coronavirus Job Retention Scheme. However, there are not to carry out any profit making or commercial revenue generating services. They can only continue to carry out particular duties to fulfil the statutory obligations they owe to their company – such as record keeping, holding office holding, payroll, banking and payments, acting in a legal capacity.
Furloughing for normally employee type duties:
- If, as a director you were on the payroll, engaged under an existing written or verbal employment contract on 28 February 2020, and your services, in performing the duties expected of you as an employee or director are not required due to the affects of the ongoing crisis, the company may furlough you.
Above all it needs to be remembered that a furloughed employee is not allowed to work for the employer during the furlough period. Depending on the type of business, a company director may well need to work in some capacity during even a period of closure of the business. The administration of the grant would be classed as working.