COVID-19: Company Directors & Shareholders. Many small companies are run by just one or two directors and have no other employees. What government financial support is available to directors/shareholders during the coronavirus crisis?

At a glance

  • A director or company officer is an employee for PAYE purposes.
  • 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 Coronavirus Job Retention Scheme (CJRS)
  • There are potential issues for small companies to consider.
  • 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.

If the director’s company is adversely affected by COVID-19, the director has the following options, depending on the circumstances:

Potential insolvency

  • The government has announced that it will temporarily suspend the wrongful trading rules, backdated to 1 March 2020.
  • Directors should though be mindful of their company's prospects and take appropriate advice where needed.

See COVID-19: Insolvency & Directors

Joint and several liabilty of directors for deliberate claims under CJRS where company not eligible

Finance Bill 2020 includes provision to make a company officer jointly and severally liable for Income Tax assessments raised on CJRS payments where:

  • that officer deliberately made a CJRS claim where the company was not eligible and
  • the company is insolvent, or
  • HMRC can show there is a serious risk that the company will not be able to pay the Income Tax assessment.

See COVID-19 Coronavirus Job Retention Scheme

Furloughing

Furloughing for normally employee type duties:

  • A director who was on the payroll and engaged under an existing written or verbal employment contract on or before 19 March 2020 ( prior to 15/04/2020 this date was 28 February 2020) may be furloughed if they meet the conditions of the scheme.
  • HMRC guidance says that where a company board decides to furlough a director, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director being furloughed who must agree to it as well as agreeing to what their ongoing pay will be during the furlough period.

Can you furlough a sole director?

  • A sole director company will probably not wish to furlough a director 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.
  • A sole director company may furlough the director in respect of their employment duties.

Potential issues

  • 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 in his statutory capacity.
  • 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. From 1 July flexible furloughing means that part-time work can be undertaken with claims being adjusted accordingly.
  • A sole director cannot be laid off completely as they still have to be present 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. In most cases, statutory duties are not onerous. In terms of contracts, this would normally be evidenced by two contracts: a service contract and an employment contract.
  • If you have two directors then one could be totally furloughed leaving the other in charge of statutory obligations.

HMRC guidance for employers states that, prior to 30 June 2020:

  • "To be eligible for the grant, when on furlough, an employee cannot undertake work for, or on behalf, of the organisation. This includes providing services or generating revenue."
  • "If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme."
  • "Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose, for instance, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company."

A director must act in the best interests of their company. In the case of a single director-employee, you may furlough yourself but you must be unfurloughed if you start working to generate revenue prior to 30 June. From 1 July part-time work is allowed.

Salary or dividends?

  • Employers must have been paying a salary through a payroll to be eligible for the Coronavirus Employee Retention grant. There must have been a payment of earnings for the 2019/20 tax year notified to HMRC under RTI on or before 19 March 2020. See COVID-19 Coronavirus Job Retention Scheme for more details about directors who are paid annually. UDPATED 5/5
  • Payments made to employees when furloughed will be calculated based on average monthly payrolled earnings for the 2019/20 tax year.
  • It needs to be remembered that up to 30 June 2020 a furloughed employee is not allowed to work for the employer during the furlough period. You may undertake training as a furloughed employee.

  • There is no scheme in place for the government to provide financial support to shareholders where the amount of their dividend is affected by the COVID-19 crisis.
    • If a company can no longer afford to pay dividends, it may be insolvent, directors should take appropriate advice.
    • If the company decides to change the terms of the contract in order to pay a salary instead of a dividend, this must be agreed contractually between the company and its director. As suggested above, we would normally expect to see a service contact which details the statutory duties of a director and an employment contract which covers duties as an employee.

National Living Wage (NLW)/ National Minimum Wage (NMW)

As no one is working during the time that they are furloughed. If they are paid 80% of their usual pay, this may well take them below the NLW/NMW and that is accepted. If however, they are undertaking training in that period, they must be paid the NLW/NMW for the training period and the employer must top-up any shortfall.

Low salary example

2019/20

The sole director of an events company pays themself a basic salary of £8,632 per year and the balance of their remuneration is made up by a dividend, calculated in March, based on annual profits to 31 March and paid on 5 April. The company is forced to shut down during March 2020 following COVID-19 restrictions.

The director can only be furloughed from the day that the company confirms they are being furloughed. This should be confirmed in writing. 

  • The amount claimed under the Coronavirus Employee Job Retention scheme in 2019/20 will be £8,632 divided by 12 and adjusted to deduct the number of days worked in March, then you add any employer pension contributions, there is no National Insurance to add as annual salary is less than the Employers' Secondary NICs threshold.
  • The amount claimed for 2020/21 would be presumably based on the same figures. There would be no adjustment for days worked as the rules state that you cannot be working and also be furloughed.
  • In terms of dividends: if the company has profits to 31 March it will be able to vote and pay a dividend. No amount of the dividend can be reclaimed from the government.

2020/21
With no events booked for the foreseeable future, the company has no income.

  • For April to October inclusive the company can continue to claim under the Employee Job Retention scheme though the amounts it can claim will reduce from 1 August.
  • In terms of dividends: these can only be paid if the company has retained profits. If there are not profits, a dividend can only be voted again once the company returns to profitability.
  • The company could consider making a variation of the director's employment terms in order to increase the salary to market-rate pay. We think that it would be incredibly difficult to find any commercial justification in increasing a salary of someone who is furloughed and it is likely that HMRC would decline to pay it on that basis. More guidance is required from HMRC on this point.
  • If the company has no retained profits, it may apply for bank funding in order to pay staff and the director. A bank is highly unlikely to offer loan funding to pay a dividend.

Additional support for small companies

  • Employee job retention scheme: if you have other employees.
  • Grant funding: if you have a business premises.
  • Small business rate relief: if you have a business premises.
  • VAT payment deferral.
  • Emergency bank loans.
  • Extension of Companies House filing deadline.

See our COVID-19: Financial support tracker for links.

 

Board minutes to 30 June 2020

This template is for use for directors being put on furlough before 30 June 2020. From 1 July 2020 new documentation will be required to reflect changes to the scheme and any part-time employment duties being undertaken by the director.

TEMPLATE

[Company name] Limited

 

MINUTES OF A MEETING OF THE DIRECTORS

 

Held at: [Your address]

On: [Date]

 At:  [Time]

Present:   [Directors’ names]

IT WAS RESOLVED THAT due to the ongoing COVID-19 (Coronavirus) pandemic and its impact upon the company’s business:

[Name of director(s)] would be furloughed under the government's Coronavirus Job Retention Scheme (“the Scheme”) with effect from [insert start date, this cannot be before 1 March 2020].

The Board considers that [Name of director(s)] is able to continue to meet the requirements of the Companies Act 2006 with regards to directors duties without breaching the conditions of the Scheme but will continue to review the position during the furlough period.

The furlough period would last a minimum of 3 weeks and end on such date as to be determined by the Board but no later than 30 June 2020 unless this date is extended by the government.

[Name of director**] would not be required to work until further notice, other than to do what is necessary to fulfil their statutory duties as director(s) under the Companies Act, but would continue to be paid [as normal / would receive 80% of their normal pay / would receive pay of £2,500*** per month.]*

 

…………………………….

[name of chair of meeting]

Chairman

 

Notes for completion - DELETE BEFORE SIGNING

*Delete as appropriate.

** If there are different arrangements per director this paragraph should be duplicated and completed accordingly.

 ***Only use the £2,500 per month option where directors earnings are such that 80% of their normal gross pay is more than £2,500 per month. For example, someone earning £3,500 per month would be due £2,800 at 80% but this is reduced by the cap to £2,500.

 

 

Letter to director to 30 June 2020

This template is for use for directors being put on furlough before 30 June 2020. From 1 July 2020 new documentation will be required to reflect changes to the scheme and any part-time employment duties being undertaken by the director.

TEMPLATE

LETTER TO DIRECTORS

Instructions: you can use this as a template, cut and paste the text on to your own letterhead. There are Notes for completion below.

Letter start:

[Employer name if not on headed paper]

[Employer address]

[Date]

Dear [Director name]

Due to the ongoing COVID-19 (Coronavirus) pandemic, the board of directors has agreed that you will be furloughed under the government's Coronavirus Job Retention Scheme (“the Scheme”).

Other than to do what is reasonably necessary to fulfil your director’s duties in line with the Companies Act 2006, you will not be required to work until further notice but will continue to be paid [as normal / and will receive 80% of your normal pay / you will receive pay of £2,500** per month.]*

Income tax and national insurance will be deducted from your pay as normal.

You will continue to be a company director during the furloughed period, however, you must adhere to the conditions of the Scheme during this period. In particular, you must not do any work of the kind that you would normally carry out to generate commercial revenue or provide services to or on behalf of the company.

Your furlough period starts on [insert start date – this cannot be before 1 March 2020]. It will end on the earlier of:

  • The date you are requested to return to work.
  • 30 June 2020 unless this date is extended by the government.

The government has set the minimum furlough period at 3 weeks.

Please sign the attached form to confirm your agreement to being a furloughed director and return to [name of appropriate person/address or email address] by [date].

Yours sincerely

[your name]

Letter end:

Notes for completion - DELETE BEFORE SENDING

*Delete as appropriate.

 **Only use the £2,500 per month option where directors earnings are such that 80% of their normal gross pay is more than £2,500 per month. For example, someone earning £3,500 per month would be due £2,800 at 80% but this is reduced by the cap to £2,500.

 

Board minutes from 1 July 2020

This template is for furlough periods commencing on or after 1 July 2020 only.

TEMPLATE

[Company name] Limited

 

MINUTES OF A MEETING OF THE DIRECTORS

 

Held at: [Your address]

On: [Date]

 At:  [Time]

Present:   [Directors’ names]

IT WAS RESOLVED THAT due to the ongoing COVID-19 (Coronavirus) pandemic and its impact upon the company’s business [Name of director(s)] who has been furloughed under the Coronavirus Job Retention Scheme (“the Scheme”) between [insert dates of furlough prior to 1 July 2020] would continue to be furloughed with effect from [insert start date, this cannot be before 1 July 2020].

The Board considers that [Name of director(s)] is able to continue to meet the requirements of the Companies Act 2006 with regards to directors duties without breaching the conditions of the Scheme but will continue to review the position during the furlough period.

This furlough period will last a minimum of 1 week and end on such date as to be determined by the Board but no later than 31 October 2020 unless this date is extended by the government.

[Name of director**] [will not be required to work until further notice, other than to do what is necessary to fulfil their statutory duties as director(s) under the Companies Act/will be required to work [insert number of hours] per week/month]*, but will continue to be paid [as normal / will receive 80% of their normal pay / will receive pay of [£2,500/£2,187.50/£1,875]*** per month.]*

…………………………….

[name of chair of meeting]

Chairman

Notes for completion - DELETE BEFORE SIGNING

*Delete as appropriate.

** If there are different arrangements per director this paragraph should be duplicated and completed accordingly.

 ***Only use the £2,500 per month option where directors earnings are such that 80% of their normal gross pay is more than £2,500 per month and for periods up to 31 August 2020. For September the cap is reduced to £2,187.50 and for October to £1,875.

 

 

Letter to director from 1 July 2020

This template is for furlough periods commencing on or after 1 July 2020 only.

 

TEMPLATE

LETTER TO DIRECTORS

Instructions: you can use this as a template, cut and paste the text on to your own letterhead. There are Notes for completion below.

Letter start:

[Employer name if not on headed paper]

[Employer address]

[Date]

Dear [Director name]

Due to the ongoing COVID-19 (Coronavirus) pandemic, the board of directors has agreed that you will continue to be furloughed under the Coronavirus Job Retention Scheme (“the Scheme”).

[Other than to do what is reasonably necessary to fulfil your director’s duties in line with the Companies Act 2006, you will not be required to work until further notice/You will be required to work [insert number of hours] per week/month]*, and will continue to be paid [as normal / and will receive 80% of your normal pay / you will receive pay of [£2,500/£2187.50/£1,875]** per month.]*

Income tax and national insurance will be deducted from your pay as normal.

You will continue to be a company director during the furloughed period, however, you must adhere to the conditions of the Scheme during this period.

Your furlough period starts on [insert start date – this cannot be before 1 July 2020]. It will end on the earlier of:

  • The date you are requested to return to work.
  • 31 October 2020 unless this date is extended by the government.

The government has set the minimum furlough period at 1 week.

Please sign the attached form to confirm your agreement to being a furloughed director and return to [name of appropriate person/address or email address] by [date].

Yours sincerely

[your name]

Letter end:

Notes for completion - DELETE BEFORE SENDING

*Delete as appropriate.

 ** Only use the £2,500 per month option where directors earnings are such that 80% of their normal gross pay is more than £2,500 per month and for periods up to 31 August 2020. For September the cap is reduced to £2,187.50 and for October to £1,875.


 

Director response form

 A form for a furloughed director to return to the employer company. This may be used for periods pre and post 1 July 2020 but may require amendment where the director is undertaking part-time working from 1 July.

 

I [Director name and works / employee number (if they have one)] consent to being a furloughed director under the government's Coronavirus Job Retention Scheme (“the Scheme”) until such time as I am asked to return to work.

I understand that I remain a company director of [insert name of company] and must adhere to the terms of the Scheme during the furlough period.

I agree that my monthly pay during the furlough period will be [insert details of monthly pay as already agreed with the director].

……………………………………………

PRINT NAME

…………………………………………….

SIGN HERE

………………………………………………

DATE

  

 

 

Comments (44)

Rated 0 out of 5 based on 0 voters
This comment was minimized by the moderator on the site

Hi,
I was to start a new job at the beginning of March, it was to be a self employment or as a company. However this offer was put on hold due to COVID19 outbreak.

I have my own company but it was dormant since I continued working as an...

Hi,
I was to start a new job at the beginning of March, it was to be a self employment or as a company. However this offer was put on hold due to COVID19 outbreak.

I have my own company but it was dormant since I continued working as an employee.
Could you please advice what I could do in this situation?

I can claim Universal Credit but I do not want to as was never unemployed.
I was thinking about fourloughing myself as a Director and issue backdate salary as this is what I am doing living from my savings.
What about the future as the lockdown is easing however the job doesn't seem to come back.
I also have received other offers in writing, all of them put on hold.

Would appreciate the advice.

Thank you.

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Guest
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My wife runs a small business with a friend who is a shareholder and the only one on PAYE.

They have had to be furloughed as there is simply no work but I have been working for free for this company for months and wondered if I can carry out...

My wife runs a small business with a friend who is a shareholder and the only one on PAYE.

They have had to be furloughed as there is simply no work but I have been working for free for this company for months and wondered if I can carry out advertising and product development for the company still to try and keep it alive with new revenue streams. I have no other job, don't take a salary and don't claim benefits.

Would appreciate advice here.

Thanks

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Guest
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Hi my husband and I have been self employed since June 2019, therefore havenot submitted accounts, what help other than UC is there. This seems very unfair

Guest
This comment was minimized by the moderator on the site

I’m a furloughed director of my own limited company and my work in television has stopped, however I’ve got an enquiry about work for 1 day in June, can I do that job separate for my company and declare it or could I do the job as an independent...

I’m a furloughed director of my own limited company and my work in television has stopped, however I’ve got an enquiry about work for 1 day in June, can I do that job separate for my company and declare it or could I do the job as an independent from my company? I just want to get a sense of normality back into my life so I’d hate to turn the work down. Thank you.

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Guest
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For directors of a limited companies (taking a small salary/additional dividends) with work directly affected by Covid — is it possible to adjust previously reported salary to HMRC to make furlough worthwhile?

For example, changing past years...

For directors of a limited companies (taking a small salary/additional dividends) with work directly affected by Covid — is it possible to adjust previously reported salary to HMRC to make furlough worthwhile?

For example, changing past years monthly earnings to £3125/mo.

Kindest

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Guest
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Hi,
I am a limited company working as sole trader, always worked, had an accident in November ,I was hospitalised, I had treatment up untill March 10th ,but now that treatment is complete and am ready to return to freelance work, can’t...

Hi,
I am a limited company working as sole trader, always worked, had an accident in November ,I was hospitalised, I had treatment up untill March 10th ,but now that treatment is complete and am ready to return to freelance work, can’t because Covid, where do I go from here

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Guest
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Hi,

I am a sole Director for a small courier company and I pay myself dividends only every month.

I am not on PAYE and I can’t find any information regarding people in this situation. Can I claim anything at all?

Guest
This comment was minimized by the moderator on the site

Hi we a husband & wife director s in car sale no work since 25 March as we where not making a profit in 2018/19 From July 2019 did not pay PAYE can we get any help ?

Guest
This comment was minimized by the moderator on the site

I have the same query as Guest.
I am a director of my limited company. Was in between contracts when at the outbreak of Covid and the announcement of the JRS and was still paying myself a monthly salary via PAYE from my Business account.
Do I...

I have the same query as Guest.
I am a director of my limited company. Was in between contracts when at the outbreak of Covid and the announcement of the JRS and was still paying myself a monthly salary via PAYE from my Business account.
Do I qualify for the the 80% PAYE ? Where could I find the relevant information.
Thank you and regards

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Guest
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See the comments below.
You can claim what you are entitled to and that will very much depend on the nature of your business and it may be a decision based on your morals if you are just using furloughing as an excuse for a paid holiday.
Some...

See the comments below.
You can claim what you are entitled to and that will very much depend on the nature of your business and it may be a decision based on your morals if you are just using furloughing as an excuse for a paid holiday.
Some people may be determined to claim as much as possible and don't give a fig, conversely, many more and often business owners particularly are affected by the lockdown but are not claiming as they still have ongoing work that they can do and they have money in the bank.

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Guest
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I'm pretty certain that the requirement by HMRC to have a Board minute to furlough directors came in later - after the furlough scheme was announced. What would recommend companies do if they have no board approval. Should they hold a late board...

I'm pretty certain that the requirement by HMRC to have a Board minute to furlough directors came in later - after the furlough scheme was announced. What would recommend companies do if they have no board approval. Should they hold a late board meeting and acknowledge the fact that its late, but have as its better than nothing?

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Guest
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Creating a board minute when the directors have met and made an important decision creates a record of that decision. The directors will want to show that they are acting in the best interests of the company. HMRC asks for records of decision...

Creating a board minute when the directors have met and made an important decision creates a record of that decision. The directors will want to show that they are acting in the best interests of the company. HMRC asks for records of decision making from time to time.

I do not think that HMRC is the one saying that you need a board minute, everyone says it: its good basic corporate governance.

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