Sole directors and the Coronavirus Job Retention Scheme

There are over a million sole director/shareholder owner-managed limited companies in the UK who don’t qualify as self-employed individuals (although they will complete an income tax self assessment return). Typically, they take some remuneration through PAYE by way of salary, usually at a level just above the NIC threshold, with the remainder taken as dividends. So can these directors make use of the Coronavirus Job Retention Scheme? The simple answer is yes, but only based on their PAYE salary.
Dividends are not included as part of the amount that can be claimed. The other key issue is that the director must stop working completely in the business to be eligible for the scheme. We understand that statutory director duties can be carried out but no services or revenue-generating work.

What can I claim?

You can claim a grant of up to 80% of your ‘regular wage’ or £2,500 (whichever is lower). This claim can be backdated to 1 March 2020, but would only be available from the date the director is actually furloughed. The scheme will last for at least three months. You can still put your full salary through and the 20% not funded by the government will be credited to your director loan account.

By when does my PAYE scheme need to be in place?

The employers’ PAYE scheme must have been created and started by 28 February 2020 and you must also have a bank account in the UK. You must be on the payroll as at this date.

What if my salary is paid annually?

It is our current understanding that this should be acceptable.

What if I just reduce my hours or pay?

If the director is still working, even for reduced hours or pay, they will not be able to claim via this scheme.

How do I calculate my ‘regular wage’?

Your regular wage is the higher of the same month’s earnings from the previous year or the average monthly earnings from the 2019-20 tax year.

Business Interruption Loan Scheme Amended

The government has been forced to amend the coronavirus business interruption loan scheme for firms affected by the pandemic, following claims banks were forcing companies to provide personal guarantees by directors and proprietors, and is adding an option for larger companies.

The borrower remains fully liable for the debt, but under the scheme, personal guarantees of any form will not be taken for facilities below £250,000.

Your first port of call to consider further financing is your bank.

  • Project what you might need in additional financing to get your business through the crisis say for the next 3 months
  • Discuss with your bank the most appropriate form of finance for you – overdraft, government backed business interruption loan, or some other form of secured or unsecured loan
  • An overdraft will be more readily and quickly attainable, but will be far more expensive interest wise while it is in use and will entail an arrangement fee. This may be more appropriate if you still have an income stream, albeit interrupted, or income or payment, while still continuing, will be delayed. Consider an overdraft as a back stop or helpful to cover interrupted and delayed income. Better to go in and out of an overdraft.It will be preferable not to take on additional risk and avoid personal guarantees where possible. For that reason, a government backed business interruption loan would be best with the government guaranteeing 80% of the loan should the business ultimately fail.
  • The banks are unlikely to offer unsecured loans, but security may be available by offering a debenture over the company’s assets or utilising any equity in the trading premises, rather than provide a director personal guarantee. If good security is available, this may be a faster route to a loan, including the government backed one.
  • You could also talk to your bank about asset finance, if any are available in the business. This may well be a faster and less onerous way to secure a loan.
  • Other than an overdraft, any loan application will need to follow usual procedures for the provision of projections, accounts and maybe a revised business plan. You should get ready by preparing financial projections for profit and cash over the next 12 months, with particular attention to your income and cash flow over the next 3 months and then beyond to reflect how you consider the businesses’ income will come back on stream, in what amounts and over what time frame.
  • The Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied charges regarding a loan under their scheme.

Deferring your next VAT payment

This can be done, with no need to make an application, for your VAT payment that falls in the 3 months from 20 March. No interest will be charged but you will need to pay it by 31 March 2021.

Note to cancel your direct debit with HMRC if that is your method of payment. Don’t worry that their systems will automatically send you a notice to make arrangements to pay your VAT by another method.

Job Retention Scheme for Furloughed Employees-Update

The government said when the details of the scheme were released that furloughed pay could not include commission, fees and bonus payments. However, they have now clarified the following-

Past Overtime, Fees, Commission, Bonuses and non Cash Payments

You can claim any regular payments that you are meant to pay to your employees. This includes Wages, past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non cash payments should be excluded.

What about overtime?

It is paid. This has been clarified and HMRC have been quick to update their guidance.

  • The grant paid by HMRC will be based on regular contractual pay including past overtime.

Practically speaking, this means that the amount paid is based on the employee’s contractual earnings as paid in February 2020, or if the calculation is based on variable pay, the mechanism will be the average of contractual earnings for 2019/20 paid, up to 28 February 2020. It will not include discretionary amounts paid.

Bayliss Ware
Chartered Accountants
April 2020