Two schemes have been announced providing comparable support for both the employed and self-employed.
Employers and Employees can explore their ability to claim under the Coronavirus Job Retention Scheme (CJRS) and Sole-Traders/Partnerships can explore their ability to claim under the Self-Employment Income Support Scheme (SEISS).
As the treasury irons out finer details of both schemes, one area that many businesses will be keen to fully understand, is what support is available to Directors.
Is a Director Self-Employed and can they receive support through SEISS?
Many business owners will have made the decision to set up a Limited Company, through which to operate their business and they will be Directors and Shareholders of their Company. Whilst many Directors will see themselves as Self-Employed, having set up their business with financial risk and the other trademarks associated with being in business on their own account, incorporated businesses will not qualify under the SEISS.
This is because a company is a separately legal entity from the business owners themselves and the SEISS supports those who act as individuals and partnerships with no separate legal entity in place.
Can a Director receive support through CJRS?
Most business owners will have paid themselves via a combination of salary and dividends, as a tax efficient way of extracting profits from their business. Having already paid corporation tax on their profits, historical low tax rates on dividends mean this was a tax efficient way to be remunerated.
The CJRS details clearly outline that this scheme is available for those individuals on the payroll at 28th February 2020 and covers actual salary before tax. Therefore, to be eligible Directors would need to be on the payroll and would only be able to explore support in-respect of the salary aspect of their remuneration.
To be clear, when we refer to Directors, we are referring to Statutory Directors; the owners of the business. Those individuals with job titles of director/associate director who are not Statutory Directors at Companies House and have employment contracts in place, will be treated as employees.
In terms of claiming relief as a furloughed employee under CJRS, being able to claim a taxable grant of the lower of 80% of the regular wage or £2,500 a month, the rules outline that the employee must stop working for the business and is unable to carry out any further work.
The area where there is uncertainty is how this would work for Directors. Directors have both fiduciary and statutory duties they would need to continue to carry out to meet deadlines. Therefore, based on the Government guidelines, as they are outlined within the CJRS pages, they would not be able to carry out any work in order to benefit from furlough under the CJRS scheme.
The CJRS pages on the Government website do not currently refer to directors at all. Only the SEISS pages refer to directors and those with a combination of salary and dividends and points those individuals in the direction of making a claim via the CJRS with no real detail.
Naturally this area of uncertainty for Directors has attracted much attention and the general view, from the media coverage, a Senior person at HMRC and across the profession, is that HMRC’s view has always been that a Director’s role as an office holder is distinct and separate to the role of an employee, even if an individual fulfils both roles. Therefore, a logical approach to this would be that a Director can furlough their employment role and continue with their statutory duties as a Director, albeit nothing that generates work or income for the business.
This clarification of what activities a Director could undertake and still qualify for their employment role to be furloughed, is critical to know to allow many to review their options with certainty.
It is also worth highlighting that many individuals support businesses in the capacity as a Non-Executive Director and, in most cases, they would invoice the company for their work. Whilst there are rules outlining those in Non-Executive Director roles should be paid via the Payroll for the non-consultancy aspect of their role, this is often overlooked or misunderstood. For those Non-Executive Directors, where they are not on the payroll of the business for which they provide services, they will not be able to claim support under CJRS and will have to review their options; do they receive a salary from their own company, or are they self-employed etc.
When certainty is provided on Director duties and furlough, if Directors can be furloughed and carry out a set level of duties in their capacity as a Director based on the current rules, they will still not receive any support for the Dividend aspect of their income. Many will still therefore face a potentially significant gap in their income.
Therefore, Directors will need to consider what other support may be available to them.
The Government have outlined a number of support packages over the past two weeks ranging from:
- deferring VAT and Self-Assessment payments
- a Statutory Sick Pay relief package for small and medium sized businesses (SMEs)
- a 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in England
- a small business grant funding of £10,000 for all businesses in receipt of small business rate relief or rural rate relief
- grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
- the Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs through the British Business Bank
- a new lending facility from the Bank of England to help support liquidity amongst larger firms, helping them bridge coronavirus disruption to their cash flows through loans
- the HMRC Time To Pay Scheme
More details can be found on the Governments Home Page: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses
In summary, every case should be reviewed separately to understand how the rules apply to the situation and ensure claims are made correctly with all avenues explored.