Important Updates to Coronavirus Job Retention Scheme Affecting Directors and Employees – 16/04/2020

Updates Affecting Directors

Many of you have being asking the question whether directors of limited companies can be furloughed. Although the government answer to this was initially not clear, more guidance has been presented by the government which explains this position. Therefore to clarify:

• A director is an employee for PAYE purposes
• It is possible for a company to furlough a director under the COVID-19 Job Retention Scheme
• A director who is furloughed can only undertake work to fulfil a duty or other obligation arising from an Act of Parliament relating to the filing of company’s accounts or provision of other information relating to the administration of the director’s company.
• A sole director company cannot furlough themselves 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, as outlined in the Companies Act.
• Where one or more individual directors’ furlough is so decided by the board, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned. This will need to be formally adopted by the board, and registered within the company’s statutory records.

In order that you can rest assured that you are complying with your statutory duties and have all the relevant documents to present to HMRC, should HMRC ever carry out a retrospective enquiry as to whether the director was entitled to be furloughed,  we can deal with the board minutes and any associated letters from the company to the director(s) and from the director(s) to the company for you.   For this service there will be a nominal fee of £25 plus VAT, payable separately from any ongoing standing order or direct debit arrangement you may have in place.  Please get in touch with your engagement partner so that these documents can be prepared by our team.

Updates Affecting Employees

The Treasury has issued a Direction to HMRC under powers conferred by the Coronavirus Act 2020, containing authority and instructions for making payments under the Coronavirus Job Retention Scheme. Although amendments are possible, it is likely to be the definitive guidance on how the Job Retention Scheme works.

This email only addresses the major changes and clarifications that are set out in the Direction – Fourth iteration.

• Employees who were employed on 19 March 2020 (previously 28 February 2020) are eligible for furlough, provided the employer had submitted real time information payroll data by that date  (paras 3.2 and 5(a))
• the Scheme is not limited to those employees who would otherwise be made redundant.  It is applies to any who are furloughed “by reason of circumstances as a result of coronavirus or coronavirus disease” (para 6.1(c)).
• to claim furlough, the employer and employee must have agreed in writing that the employee will cease all work (para 6.7).  This is significant; the guidance only required notification.  The Direction from the Treasury requires written agreement.  This may mean that many employees who have already been furloughed may not fall within the meaning of the Scheme.
• the amount of salary for the employee must disregard anything which is not “regular salary or wages”.  That includes disregarding any performance related bonus or discretionary payments (including tips), any conditional payments (eg where a threshold must be met) and any non-financial benefits (paras 7.3 – 7.5).
• the employer cannot claim for any salary which is “conditional on any matter” (para 7.4(b)).  This may exclude any salary payments which the parties have agreed are conditional on the Job Retention Scheme paying out.
• the employer can claim for earnings which it “reasonably expects to be paid” to the employee (para 8.1(a)) – that seems to include deferred earnings, deferred until the Scheme pays out (provided they are not conditional on the Scheme paying out).
• the Direction is completely silent on annual leave.

Source: Daniel Barnett 

We appreciate that these challenging times continue to provide a lot of uncertainty and pressure.  But we are here for you and the whole team at Sibbalds are committed to supporting you through this and doing whatever it takes to achieve that.

If you have any queries in respect of the above please do not hesitate to contact your Engagement Partner today.