Directors and Shareholders
The government confirmed on 26 March 2020 that directors would qualify for the 80% grant towards pay if they are furloughed due to Covid-19. In the case of a sole director this would mean the company might have to effectively do no work at all during the furlough period to qualify, as to be furloughed you cannot perform any work for the company. However our understanding is that Directors are allowed to continue to perform their statutory obligations while furloughed, such as Companies House filings etc.
Directors should note the start of any inactive period and notify HMRC/our payroll team in due course when the systems are in place to instigate a job retention scheme claim.
Most director/shareholders take a low salary plus dividends package to draw money from their company. Clearly 80% of a salary which can often be £8,628 is not much grant, but the dividends are not earned income and may not directly relate to the recent profits of a company so we do not foresee these being supported in anyway.
Our advice on salary/dividends has been consistent over the years to give directors the optimum package to extract funds from their companies whilst retaining state pension entitlement. In the current crisis it appears the self-employed may be better supported than directors, but over the longer term the self-employed will have generally paid far more in tax and national insurance contributions.
I do understand that the above appears to be wholly unsatisfactory in the current climate and we are in exactly the same position as you are. As such we are recommending that directors on low household income make a claim for universal credit, and that their companies use all other support to maintain cash reserves. The details of the schemes available to companies and small businesses can be seen on our dedicated COVID-19 website pages
Please speak to us about the above if you would like any further clarification