As noted in a previous blog post, workers being furloughed under the Coronavirus Job Retention Scheme are not allowed to do any work during the furlough period. This was initially thought to mean that directors would be excluded as simply keeping the company open, even with no income, would be considered work for them.
We have subsequently been examining the position regarding directors and furloughing. As well as taking our own view on the guidance, we have been tracking other sources views on the subject. In finalising our view, we have taken special note of the CBI’s take on the subject which can be found here.
Based on the current guidance, we are taking the following view regarding directors.
- Where there is more than one director then it will always be possible to furlough all but one director.
- Where the income for a company has ceased entirely because of coronavirus, it should be possible to furlough all directors. This even applies to companies where there is only one director. Current advice is that a director fulfilling their statutory duties as director (to keep the company running even when it does not generate income) does not breach the requirement that furloughed employees cannot do any work.
- Whilst we will only be able to claim 80% of directors’ wages under the furlough rules, small company directors should still be paid 100% of their tax-efficient salary. This is because, unlike other employees, they are the owners as well for those companies. Keeping their salary at the full amount enables them to continue to extract as much tax-free income as possible.
- Where a company does not have the cash to pay directors, any unpaid directors’ salaries can be treated as owed through their directors’ loan accounts. It is an established accounting principle that a credit to a directors’ loan account is considered payment for most tax purposes.
It is possible that the government will issue further guidance that alters the above. If this happens, we will update our view accordingly and issue updated information.