Coronavirus Job Retention Scheme – what are the options for directors?

Ever felt like you’re caught between a rock and a hard place?

That’s how limited company directors might feel when they read the details and measures contained in the Coronavirus Job Retention Scheme.

 

The packages put in place for employees and the self-employed should provide some help and reassurance for much of the country’s workforce.

 

However, if you’re a director of your own limited company, you’ll recognise the metaphor if you need to access support.

 

If you’re running business through a limited company and receive some of your earnings through a PAYE scheme, you should be eligible for the government’s employee furlough scheme, the Coronavirus Job Retention Scheme (CJRS) for the employed.

 

This entitles employees to 80% of the pay that is received through PAYE up to a cap of £2500.

 

It’s available for a minimum of three weeks up to three months (or longer if extended by the government). To access the scheme, the employee must have been on the payroll since 28th February 2020.

 

The trouble for many directors of small limited companies is that they receive only a small proportion of their pay through PAYE – perhaps on average only £8000 to £12000 per annum or approximately £600 to £1000 per month. Where applicable, other monies are drawn as dividends on top.

 

Unfortunately for the CJRS, dividend payments are not counted as salary earnings, and therefore only the PAYE salary is relevant to the furlough calculation. This means that if this applies to you, you’d only be entitled to 80% of that monthly PAYE figure each month that you are furloughed.

 

Critically, it’s also a condition of the furlough scheme that furloughed employees cannot work for the business during their furlough. This would also include you.

 

This is in contrast to the self-employment scheme, which allows the self-employed to trade where essential or in possible home-working scenarios etc, and still benefit from the grant for the self-employed; although there will be a delay on payments until June.

 

To access the self-employment scheme, you must have been self-employed during the 2018/2019 tax year, as it’s based on your previous filings to HMRC that your entitlement will be assessed. If you are a director of a limited company, paying yourself at least some salary through a company PAYE scheme, you’re not considered self-employed and eligible for the Self-Employment Income Support Scheme.

 

It seems likely that there’ll be an overhaul of the tax system in years to come on the back of what’s happening currently, however, that does nothing to relieve the pressure in the short-term.

 

It may also be that there’s an adjustment to Coronavirus employment benefits schemes in the future, but there’s no further information to date.

What are my options?

 

Your business may be able to access funding or support through the various grants, loans and relief schemes that government has announced to date:

  • Coronavirus Business Interruption Scheme
  • Business rates holiday for retail, hospitality and leisure
  • Cash grant for retail, hospitality and leisure
  • Small Business Grant
  • Support for businesses paying tax
  • VAT Deferral

 

Our friends at Business Rescue Expert have produced a handy infographic outlining the basic options here.

Worst-case scenario?

 

If your business isn’t viable moving forward and your only real option is to stop trading and close it then you do have options.

 

If you’ve been receiving at least some salary through the company PAYE and have been employed by the company for more than two years; if the company goes into liquidation then you’d be entitled to redundancy payments from the Redundancy Payments Service.

 

The company would need to be liquidated, which would deal with any outstanding creditors or debts that the company owes, and if the company is unable to make any redundancy payments to its employees, they would make their claims to the Redundancy Payments Service for any of the following payments due:

  • Redundancy Pay
  • Loss of notice (where notice is not given, or not paid)
  • Arrears of Pay
  • Outstanding Holiday

 

This applies to directors of limited companies who have been receiving some salary through PAYE, as well as the company’s employees.

 

If you think that this may be an option that you’d like to investigate, please don’t hesitate to contact us and we’ll run through the details with you.

 

In most cases, it’s unclear to directors what basis they should put forward their claims to the RPS on.

 

We’ll be able to give you a good idea of whether you’d make a successful claim to the Redundancy Payments Service and crucially what the likely value of any claim would be.

 

Email jenny@redundancyassist.co.uk right now to see what option might be best for you.