10 April

Coronavirus Job Retention Scheme

         Coronavirus Job Retention Scheme

Can a director furlough themselves?

As part of their efforts to keep their businesses afloat, company directors can furlough themselves.

1. The Coronavirus Job Retention Scheme only supports permanent employees. An executive director is usually the most senior contracted permanent employee of a business, so would qualify.

2. Non-executive directors are not permanent employees, so would not qualify.

3. Furloughed employees must not perform any work for the employing business – few company directors can meet the requirement to remain entirely inactive.

4. Depending on the size and needs of the company, it may be possible to furlough one or more directors.

5. The UK government has recently indicated that a director can furlough and continue with their statutory duties. However, references to these duties only mention certain compliance activities such as filing accounts. Given that the first statutory duty of a director is "to promote the success of the company.

6. Directors paid a nominal salary but receiving the bulk of their reward through dividends would only receive 80% of the nominal salary (if they qualify). Payment-by-dividends is not supported by the Scheme.

How to furlough employees

The employer must first determine whether the situation leaves no option but to lay-off employees or make them redundant.

The employer must then inform the affected employee(s) of the decision to furlough them. Relevant clauses in the contract of employment will still apply. There may be a need for negotiation and written agreement, particularly if an employer is requiring the furloughed employee to take a 20% reduction in salary.

The employer must then use a new HMRC portal (in production) to register the names and salary details of furloughed employees (Remember – the government will pay up to £2,500 per month).

HMRC announced today the portal for job retention will be available on 20th April, first reimbursement payment should start being distributed before the end of April 2020.

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