Directors and the Job Retention Scheme (“JRS”)

Directors and the Job Retention Scheme (“JRS”)

The position of clients who operate their business as a one or two person company with few or no employees other than director/owners has been one of the most complex areas of the measures announced by the Government. In particular whether Directors of small companies can put themselves on Furlough.

One of the problems is that Directors have a legal obligation to manage and run their companies. You have in effect two roles. That of the worker carrying out the trade of your company and that of the manager of the company. The first role may have been severely impacted but the second role remains.

What follows is our understanding and interpretation of the rules but as everything is so new, we cannot be 100% certain that HMRC will interpret the rules the same way.

Options open to you

Some work is coming in

If you still have some work coming in, you should consider continuing as normal. Even if this work is greatly reduced, you will be maintaining client contacts and keeping things ticking over. You cannot be furloughed ‘part-time’ so cannot work (say) two days a week and be furloughed the other three days a week.

No work is coming in

If work has dried up completely, we believe that it is possible for a sole director to put themselves on Furlough. If there are two or more directors all or some can be put on Furlough. It should also be possible to ‘rotate’ directors on Furlough if that works for you.

However, some work in undertaking compliance and management functions will be needed. This should be minimal. and we believe it would be possible for a director to be on Furlough for three weeks (the minimum period allowed) and to then return to work for a day or two to attend to management functions (and perhaps do some trading activities if a minimal amount arises) and then to be put on Furlough again. As mentioned above, It would not be possible to put someone on a ‘part-time’ Furlough because of the minimum three week Furlough requirement..

Calculation of support under the JRS

The crux of the JRS is that HMRC will reimburse 80% of the costs associated with paying the salary of an employee. If 80% of the average salary is paid to the employee then the effect is that the costs are met by HMRC by a reimbursement of those payments (including employer’s NIC and any mandatory pension payments under auto-enrolment).

Where the same salary is paid every month, then that is the amount taken into account. However, where salary varies, then the average for 2019-20 is used.

Action to take

If you are planning to put any employee on Furlough (including yourself as a director) then you need to let us know the employee(s) concerned and the date from which the furlough is to start. You will also need to keep us informed when furlough ends or starts again.

Payroll operations essentially remain the same. You will need to let us know the salary level you want to pay. Remember that the salary level you want to pay remains up to you. What has changed is that we can claim back on your behalf up to 80% of your salary as determined above. If your normal salary is £1,000 a month, you could carry on paying this or reduce the pay to £800 a month. Either way £800 a month can be claimed under the JRS.

PAYE/NIC and any auto-enrolment pension deductions will apply as normal to the salary - whether the salary is paid at at full or reduced rate.

So salary must be paid first and then reclaimed by us on your behalf from HMRC.

• Claim

The claim will be made using the amounts in your payroll - either shortly before or during running payroll. Claims can be backdated until the 1 March where employees have already been furloughed. But remember that the ‘portal’ through which claims will be made is not yet open.

If appropriate, worker’s wages should be reduced to 80% of their salary within your payroll before they are paid. This adjustment will not be made by

• After you’ve claimed

HMRC will check your claim, and if you’re eligible, pay it to you by BACS to a UK bank account. So if we do not have this you will need to tell us.

You must pay the employee all the grant you receive for their gross pay, no fees can be charged from the money that is granted.

Uncertainties still exist

Remember that these are the rules as we understand them. The rules do not seem to have been written for smaller owner-managed companies and so we cannot be certain if HMRC see things the same way.

We also still do not know how the reclaim process will work. The claim is to be made through a ‘portal’ which has not yet been set up by HMRC. The reclaim process will involve extra work for us for which we will have to charge but we will keep this charge to the minimum we can and as previously advised, as this is Coronanvirus related work our payment terms will be 90 days.

Full information can be found at:

https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme