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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

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

Potential insolvency

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:

See COVID-19 Coronavirus Job Retention Scheme

Furloughing

Furloughing for normally employee type duties:

Can you furlough a sole director?

Potential issues

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

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?

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. 

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

Additional support for small companies

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 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 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

  

Links

Useful guides for directors (subscription content)

Director's service contract: top tips
Many small companies overlook the requirements for a service contract

Director's service contract template
All directors are required under the Companies Act to have a service contract that must be available for general inspection at the Company's registered office.

Employment status and directors
A director is an office-holder. Although this does not automatically make him an employee in terms of employment law, it does for tax purposes.

Ceasing Trading: Index (freeview content)
An index to our key guides covering how a company can cease trading and what options are available when trade has ceased.

External links

Government's Guidance: Coronavirus Job Retention Scheme

HMRC's Coronavirus Job Retention Scheme Step by step guide.

HMRC's Check if your employer can use the Coronavirus Job Retention Scheme

HMRC guidance: Reporting payments in PAYE Real-Time Information from the Coronavirus Job Retention Scheme

Offices and contact centres
Guidance for people who work in or run offices, contact centres and similar indoor environments.

Factories, plants and warehouses
Guidance for people who work in or run factories, plants and warehouses.

HMRC webchat