The past few weeks we have all been bombarded with Government announcements and information on the varying schemes that are being set up to help financially support our nation, but it still doesn’t seem clear for some as to where limited company directors fall into the picture. This article is intended to make the situation clear for you as a limited company director. What scheme do you fall into, and what do you have to do next?
What are the main Government support schemes?
There are two main Government support schemes set up to help people facing financial difficulty as a result of the Covid-19 (Coronavirus) pandemic.
- Coronavirus Job Retention Scheme – this scheme gives employees 80% of their salaries up to £2,500 per month if they are unable to work as a result of Covid-19. This was announced on 20 March 2020.
- Self-Employed Income Support Scheme – this scheme gives self-employed individuals 80% of their taxable profits (averaged over 3 years to 2018/19), up to £2,500 per month if they are unable to work as a result of Covid-19. This was announced on 26 March 2020.
Neither scheme is currently available to claim from as they are still in development with HMRC. The Coronavirus Job Retention Scheme is due to pay out before the end of April 2020 and the Self-Employed Income Support Scheme is anticipated to pay out in June 2020 (although this deadline has not been formerly committed to).
Am I self-employed as a limited company director?
No, limited company directors are not legally classified as self-employed. A self-employed individual shows trading profits on their self assessment tax return, and then pays income tax and national insurance contributions based on those trading profits. Limited company directors have personal income that is made up of salary and dividends. The trading profits are held within their limited companies, and corporation tax is paid on those profits. This means that for the purpose of the Self-Employed Income Support Scheme, limited company directors do not qualify.
What can I claim financial support for?
As mentioned above, limited company directors are not classified as self-employed, and as a result cannot make a claim from the Self-Employed Income Support Scheme.
This means that they need to look to the Coronavirus Job Retention Scheme to make a claim instead. To assess the claim properly we need to look at each section of a company director’s income individually:
A limited company director is usually an employee of their own company and pays themselves a small salary (usually below the thresholds for income tax and national insurance). The Coronavirus Job Retention Scheme is there to fund 80% of salary payments for those people unable to work as a result of Covid-19, so if you fit the criteria for that scheme then there is no reason why you can’t make a claim from it for 80% of the salary proportion of your income.
Owning shares is not an automatic right to income, and as such the Government have not and will not put a scheme in place to help compensate people for the loss of income on their shares. It is worth remembering here that limited company directors benefit from lower income tax rates (7.5% compared to 20% in the basic rate) for their dividend income, so it would be highly unlikely that the Government will step in to help, especially considering that investing in shares (regardless of whether those shares are in your own business or not) comes at the risk of the investor, through the good times and the bad.
Can I make a claim for my salary under the Coronavirus Job Retention Scheme?
The salary proportion of your total income will be covered under the Coronavirus Job Retention Scheme so long as you qualify under the criteria of the scheme. The scheme says that you need to be a furloughed worker to qualify, which then begs the question “as a limited company director can I furlough myself?”, and the answer to this one has been a bit of a minefield to uncover.
The technical definition of furlough is a paid leave of absence. During the furlough period employees are not able to perform any duties on behalf of the business at all. This includes networking, advertising, or any tasks that generate income.
It is legally possible for a director to furlough themselves, but it needs to be made clear that during their period of furlough they are not permitted to perform any tasks that generate income for their business. If they do, then they are not technically furloughed, and if they make a claim under the scheme then it may be identified as a fraudulent claim.
The Federation of Small Businesses have confirmed after discussions with the Government, that directors who are unable to work as a result of Covid-19 can furlough themselves and that as limited company directors they are still permitted to perform their statutory duties, which can be viewed in full here https://companieshouse.blog.gov.uk/2019/02/21/7-duties-of-a-company-director/ . The second statutory duty of a limited company director is to “promote the success of the company”, so with that in mind there shouldn’t be anything wrong with marketing, promoting or networking in behalf of your business whilst you are furloughed, thereby making a successful claim for 80% of your salary.
What other help is available to me?
Please see our article, Government Aid for Small Businesses : Covid-19 for more help available to you as a small business owner. This help includes deferral of tax payments, grants for business premises, and help funding staff sickness due to self-isolation.
We endeavour to update this information as and when it becomes available to us, but in the meantime if you do need accounting help then please don’t hesitate to contact us on [email protected] or 01634 540340.