A lot of my clients are small limited companies with directors who structure their remuneration to take a small salary and the remainder in dividends. Over the last couple of weeks, I’ve had quite a few questions from these businesses to ask where they fit into the Government’s Coronavirus support funding package.
The unfortunate answer is that, unless you are the ratepayer in a business premises, you are likely to fall through the cracks in the Government’s plans.
As I have detailed in a previous blog post, directors who consider themselves self-employed because they act through their own company, are not technically self-employed.
The Self-Employed Income Support Scheme was announced some two weeks ago now. It will be administered by HM Revenue & Customs and qualifying individuals will be notified of their eligibility by mail in early June. It is likely that anybody who declared profits from self-employment (or a partnership) on their 2018-19 tax return will be contacted.
Small company directors will not have self-employment profits because they extract their remuneration via dividends. This scheme, therefore, will not offer any help to them.
Anybody who did declare profits in 2018-19, but then incorporated their business, will also be left out. The scheme requires that you traded in 2019-20 and continued, or intended to continue, to trade in 2020-21.
We must then look at the Coronavirus Job Retention Scheme to see if support will be found there.
This scheme offers a grant equal to 80% of your employees’ salaries and hopefully will be available in late April. 80% of a small salary is not much but it’s better than nothing.
In order to make a claim through this scheme you must put your employees (likely yourself) on furlough. This means you should do no work but remain an employee. That is clearly not ideal, especially if you want to keep your business afloat.
HMRC’s guidance offers the following clarification on what you should and should not do:
“As office holders, salaried company directors are eligible to be furloughed and receive support through this scheme. Company directors owe duties to their company which are set out in the Companies Act 2006....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.”
Therefore, as a director, under your obligations to the company, you are still permitted to complete your statutory obligations. This would be the submission of your accounts (financial statements), albeit with the benefit of a 3 month extension, and your confirmation statements.
On first reading of the last line of the guidance it appears that; if you generate revenue and keep your business afloat (one of the key requirements of you as a director), this will exempt you from making a claim under the Job Retention Scheme.
However, as with a great deal of government guidance, this is a bit of a grey area. It says that you “should not do work of a kind [you] would carry out in normal circumstances”.
One could argue that being forced to move your business to a completely online platform is not “normal circumstances”.
I hope to get more clarification on this point in the near future.
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