Job Retention Scheme: Can directors benefit?

Over the weekend the government provided some very welcome further guidance in respect of the Coronavirus Job Retention Scheme (‘CJRS’), in particular how it will apply to company directors.

Directors can be furloughed

It has now been officially confirmed that company directors can be furloughed just like other employees.

In the event the company (or rather the directors of the company acting as a board) decides to furlough one or more directors, this will need to be recorded in the company’s official records. The decision should also be formally recorded in writing to the director in question.

Responsibilities

It has also been confirmed that if furloughed, a director cannot perform the normal responsibilities of their ‘job’ in the company. They cannot conduct any revenue generating activities or provide any services to the company.

They can however fulfil the statutory obligations they owe to the company as required under the Companies Act. This is however qualified that they may not do any more than would reasonably judged necessary for that purpose.

This could prove practically difficult for directors of some companies. If furloughed, a director will not be able to:

  • take customer calls
  • liaise with suppliers
  • plan marketing efforts, etc

In some cases in may be that such responsibilities are undertaken by a remaining director. In the case of companies with a sole director being furloughed, this would effectively result in that business being closed for the furlough period.

Salary, not dividends

To put the matter beyond doubt, the amount that can be claimed under the scheme only applies to salary under PAYE, dividends are not taken into account.

So whilst the CJRS can be of benefit directors of owned-managed companies, the benefit will be somewhat limited.

Many owned-managed companies will pay directors a small salary under PAYE, therefore the amount that can be claimed may be quite small. Many small companies may also find practical difficulties in furloughed directors not being able to undertake their normal daily responsibilities.