Coronavirus Job Retention Scheme (CJRS) for Directors
Many small companies with owner / directors have not been able to benefit significantly from the support offered by government in respect of furlough arrangements, since they often take only a small salary and then take their main income as dividends from the company when they see what profit it has made.
The furlough scheme applies only to salary, and not to dividends. However, even then, directors cannot be furloughed from their responsibilities of undertaking their statutory duties and HMRC did confirm that if only statutory duties were undertaken, this would not have prevented a director from being furloughed prior to June 2020. However, someone usually needs to be on hand to deal with any operational enquiry and this could have prevented many companies from being eligible to make a claim then. This is particularly applicable, therefore, for companies where there is a sole director.
To the extent that furlough applies to cover time the directors spend on operational activities, the furlough extension from 1 November provides the first opportunity to allow them to benefit from the furlough scheme, as they are now allowed to be furloughed part time without reference to having been furloughed prior to June 2020, which was a criterion of the Furlough scheme up to the end of October. Provided they meet the other requirements for furlough, they may now claim.
Nonetheless, there are some issues that need to be taken into consideration.
In respect of potential insolvency, directors need to be mindful of their responsibilities and the company’s prospects, even though the government has announced temporary suspension of wrongful trading rules.
If a company has made erroneous claims under the CJRS scheme, this year’s Finance Act gives HMRC powers to make the company’s directors personally responsible for tax due on the company should the company become insolvent or HMRC considers that it will have difficulty meeting its tax obligations.
