How can limited company directors find support during the COVID-19 crisis?
The COVID-19 crisis is continuing to prevent many people from working and the majority of limited company directors are struggling to determine the best way forward, particularly since the Government’s financial aid packages so far appear to have left behind these workers.
Where the director is the only employee of the company and provides their own service, they are typically classed as Personal Service Companies (PSCs), with up to two million of them currently excluded from Government support according to the Institute for Fiscal Studies.
Last month, the Chancellor announced details of the Government’s Self-Employment Income Support Scheme (SEISS) and it was hoped that PSCs would be included in this scheme. Although Rishi Sunak made no specific mention of PSC workers, guidance issued following his speech confirmed those operating through their own limited company would not qualify for the scheme.
HMRC has instead directed PSC workers to the Government’s original flagship support programme - the Coronavirus Job Retention Scheme (CJRS) – which applies to all employees that were on the payroll prior to 19th March 2020.
However, this is only applicable to PSCs if they have a PAYE scheme in place and will only cover the salary proportion of their pay, which for many will be small, since the remainder of their income is usually taken as dividends. The CJRS does not allow dividends to be included in the calculation, meaning many contractors feel they have been forgotten.
How does the Coronavirus Job Retention Scheme work?
The CJRS is a temporary scheme open to all UK employers starting from the 1st March 2020 and will remain open until at least the end of June. It is designed to support employers whose operations have been severely affected by the coronavirus.
Under this scheme, businesses can claim 80% of any furloughed employee’s (employees on a leave of absence) usual monthly wages, up to £2,500 a month, plus the associated Employer National Insurance contributions (NICs), and minimum automatic enrolment employer pensions contributions on that wage. Any additional earnings, such as commission or bonuses, are not included.
Any employees that were on the payroll on or before 19th March 2020 will be covered by this scheme, after the Government announced an extension to the original 28th February cut-off date.
However, many who started a job in March may still miss out as they must have been paid at least once before the 19th March. This means employees who were paid after 19th March for the first time will not qualify for this support.
How does the scheme apply to PSCs?
To access this scheme, businesses need to designate their workers as ‘furloughed employees’. This involves writing to the employee to advise them and informing HMRC that the employee has been furloughed. A furloughed employee is an employee that remains on the payroll but is not working due to the coronavirus outbreak.
This has created issues for sole directors of limited companies as furloughed staff cannot partake in work of any kind, yet directors have statutory duties which must be undertaken, so are they able to be furloughed?
This was a hot topic of debate and the government has since updated their guidance to confirm that directors can be furloughed while still completing their statutory responsibilities. However, the Government has made it clear that furloughed directors cannot ‘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, if you are an employee of your PSC, were on the payroll on the 19th March and are unable to work due to COVID-19, then you may be eligible to claim this financial aid. However, it’s important to remember this scheme will only cover your salary, so if you pay yourself dividends, this will not be included.
What next for PSCs?
The CJRS portal was launched on 20th April 2020 with the first claims being paid within six working days after being submitted. The intention is that the scheme will run from 1 March until the end of June 2020. The Government has also announced this could be extended, if necessary.
In order to make a claim you must submit information to HMRC about the furloughed employee (including yourself if you are the sole director) and their earnings through the new online portal. The minimum furloughed period is three weeks and employees may be furloughed multiple times. Once they approve the claim, HMRC will reimburse the employer, your Personal Service Company, via BACS into your business bank account.
Can PSC directors anticipate any further help?
It’s disappointing to see that PSC directors are being pointed towards the CJRS, especially considering they are only be eligible if their business operates a PAYE scheme. Given that the majority of these workers typically pay themselves a low salary and the rest in dividends, which are currently excluded from their earnings calculation, they could receive just £575 a month in financial support from the government.
The government has acknowledged that it would be difficult to support all types of workers, but there was also a promise that nobody would be left behind. At the moment, it appears that independent small business owners have been left out in the cold.
For more information on the help available to contractors operating through their own Personal Service Company, visit HERE.
