Many small companies are run by just one or two directors and have no other employees. What government financial support is available to director/shareholders during the coronavirus crisis?
- A director or company officer is an employee for PAYE purposes, so a director cannot claim the COVID-19 Grant for the self-employed by virtue of holding the office of a director.
- It is possible for a company to furlough a director under the COVID-19 Job Retention Scheme. See below.
- The government has temporarily suspended the wrongful trading in insolvency rules in order to allow companies to have a breathing space during the virus crisis.
- A Business Interruption Loan may be applied for, or other types of emergency funding such as overdraft, secured loans or asset financing. Contact your bank.
- The company should consider cancelling all non-essential payments.
- The director should consider cancelling all non-essential payments.
- The director can consider taking a mortgage holiday for 3 months, which should be readily accepted by the lender. Interest will be added though and payments will increase after the 3 month period. Other loans, credit cards and store loans might be considered for a 3 month payment holiday also.
- The company may defer its next VAT payment due 3 months after 20 March 2020 until 31 March 2021.
- The directors may defer their personal tax payment due 31 July until 31 January 2021.
- The company and the directors can ask HMRC for time to pay on other outstanding taxes. (Self assessment, PAYE and corporation tax).
- If you pay no business rates on your premises, you may receive a £10,000 grant from the local authority. They will contact you, or check if you need to apply.
- The company or its directors can ask their landlord for a 3 month rent holiday. You cannot be evicted during the 3 month period for non-payment of rent.
Furloughing a director
Furloughing – normal rules apply to the employment duties:
- A director who was on the payroll and engaged under an existing written or verbal employment contract on 28 February 2020 may be furloughed.
Can you furlough a sole director?
- In deciding whether to furlough a director in respect of their duties as a company officer, it is assumed that the director will not be furloughed in respect of their statutory duties. This is because a company cannot operate without its director and all directors have ongoing fiduciary duties to their companies.
Most companies will need to have someone on hand, to handle on-going administration such as post, bookkeeping, tax filings and banking. These kinds of duties can be
- performed by a director, which can still be done although the director is furloughed.
- A company can go into a ‘COVID-19 hibernation’ meaning that the director would have no day-to-day employment type duties during that period but we are uneasy recommending that a sole director is laid off completely as they still have to undertake their statutory duties. In such cases part-furloughing is possible: duties as an employee would be furloughed. Statutory duties would not be furloughed, but can be done with no pay.
- HMRC states that “If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and you will have to continue paying the employee through your payroll and pay their salary subject to the terms of the employment contract you agreed”. This also refers to directors, so they cannot provide any services or generate any income while on furlough, even on reduced hours. They can though still operate as an officer of the company and monitor and look after the company’s financial obligations.