⚠️ We are working hard to ensure this guidance is up to date. However, you should bear in mind that things may change as the government respond to the ongoing situation.
Coronavirus: Support for limited company directors
When someone has been working on a self-employed basis (i.e. as a sole trader) and their business begins to develop, the next step can often be to incorporate and provide their services via a limited company. There is a lot of confusion over what support such people can access during the current coronavirus situation – the Self Employed Income Support Scheme, the Job Retention Scheme, both or neither?
People who have their own limited company will be a director of their company and generally also:
- the shareholder of the company and
- the employee of the company.
The company itself is a separate legal entity to its directors, employees and shareholders.
The company is usually contracted to provide certain services and the director (in their capacity as the company’s employee) carries out the services. We explain more on our website.
Once someone begins to work through their own company, they are no longer self-employed, even though they may carry on doing the work in a similar way to the way they have always done.
Therefore company directors do not typically qualify for the Self Employed Income Support Scheme (SEISS). To understand more about this, see the warning we give in our press release: COVID-19 grant warning for new limited companies.
The Job Retention Scheme (JRS)
When work is carried out by the company, the company invoices for the work performed and receives payment from its clients. Most company directors (who are the ones performing the work) get paid a salary from their company in respect of the services they provide their company and, provided the company is profitable, they may also get paid dividends in respect of their shares in the company.
To the extent that directors get a salary from their own limited company, this should be paid via the Pay As You Earn (PAYE) system, meaning that they can potentially access the Job Retention Scheme provided all the relevant conditions are met.
One of the conditions is that the employer can only claim for employees who are on furlough. This can sometimes be difficult for directors. We look at this below.
As directors often adopt a strategy of taking a relatively low salary (to stay below the relevant tax/NIC thresholds), supplemented by regular dividends, you may not be entitled to claim very much under the JRS (probably something like 80% of around £700 a month).
As dividends represent a return on the investment in the company by way of the shares owned, at the moment there is no government support available to cover loss of this type of income.
On 31 October 2020 it was announced that the Job Retention Scheme will be extended from 1 November 2020 to April 2021. More details can be found on our website.
Annually paid directors
HMRC’s guidance on directors who are only paid once per year (known as annually paid) can be found on GOV.UK. Under the original JRS, there was a problem for directors whose annual pay was paid at the end of March, because in order for employees to qualify, there had to have been a payment of salary in in the period 6 April 2019 to 19 March 2020.
As stated above, the JRS has been extended from 1 November to 30 April 2021. The eligibility criteria for the extension to the scheme states that, from 1 November, employers can claim for employees who were employed on 30 October 2020, as long as they have made a PAYE RTI submission to HMRC between the 20 March 2020 and 30 October 2020, notifying a payment of earnings for that employee.
This change means that end of March annually paid directors can now qualify for the JRS from 1 November 2020, as long as they received a payment at the end of March 2020. However, it may cause problems for directors paid at other points in the year – for example end of December, meaning they are not eligible for support from the JRS in the period 1 November 2020 to 30 April 2021.
How does furloughing work for directors?
One of the conditions of the JRS is that the employer (in this case the company) must ‘furlough’ the employee. This usually means that the employee can do no work for the employer for the time they are furloughed. However, director/employees can furlough themselves provided they are only undertaking minor statutory/administrative directorial duties in that time, and not providing services or undertaking revenue generating work. This is confirmed in guidance on GOV.UK.
Under the original JRS, running from March to 30 June 2020, it was only possible to be either fully furloughed or not furloughed at all. Directors needed to weigh up very carefully whether it was a good idea to furlough themselves, given the stringent ‘no work’ rule that would restrict their ability to manage their business.
From 1 July 2020, it became possible to be partially (or ‘flexibly’) furloughed, but employees could only qualify for JRS in the period 1 July to 31 October 2020 if they had been furloughed under the original JRS. You can read more about flexible furlough and directors on the ATT website.
From 1 November 2020, employers are able to claim for employees who are furloughed (including flexibly furloughed) even if they have not previously been furloughed.
How do I make a JRS claim?
The main information you will need is the company payroll records.
If you have an accountant helping you run your limited company and they manage the payroll for you, you will need to get the information from them if you want to make the claim yourself. If you want help from your accountant to make a JRS claim, you will need to agree with them what you want them to do and how much it will cost.
For example, they could:
- advise you on what you need to do in terms of officially furloughing yourself,
- calculate the amount of the grant,
- apply for the grant on your behalf,
- advise on how to account for the grant at limited company level
- process the grant through the payroll.
If you are struggling to find all the relevant information you should contact HMRC and explain the situation. They may be able to provide you with the basic information that you need to make the application, for example, the references you need and a record of your recent salary payments (or you may be able to obtain this from your Personal Tax Account).
Can you be a self-employed director?
There is no reason why a company director cannot also have a completely separate self-employment which is nothing to do with their company. For example, Sarah has a company which carries out plumbing services and also has a small-scale cake-baking business which is carried out on a self-employed basis.
However, it would be unusual for directors to contract back to their own companies on a self-employed basis. This is due to the rules that exist around receiving money from a limited company if you are a director.
Directors are ‘office holders’ which means that any money relating to directorial duties must be subject to PAYE. For other company work NOT related to the role of director, in theory, it may be possible for them to do this on a self-employed basis, by being hired by their own company to carry out the work on its behalf. But this would only usually happen if they have some real specialist skill unrelated to the company's normal business and they provide this to other businesses as well as their own, for example. This would be very unusual in a personal service company scenario, particularly for those on relatively modest incomes, therefore we do not consider the possibility any further in our guidance.
But I am self-employed under IR35/the off payroll rules?
The IR35 rules/off payroll rules may be causing some confusion as to whether the SEISS can apply. These rules say that if a director looks like an employee of the end client they work for, but for their limited company, then they should pay the same level of tax/NIC as an ordinary employee. We explain more here on our website.
You can fall outside of these rules if you look like a self-employed person working for the end client rather than an employee (as per the general status tests). But this ‘self-employed’ determination only applies for the purposes of deciding whether IR35/the off-payroll rules apply. It does not change the actual position of the director as regards the nature of the income paid out to them by their limited company - it would still be salary/dividends etc.
What if I pay 'extra' tax because I work in the public sector or am inside IR35?
If you work via a limited company in the public sector, under the off-payroll working rules, it may be the case that your company invoices are being paid after deduction of PAYE tax and National Insurance by the ‘fee payer’.
HMRC's guidance suggests it would be possible for a Job Retention Scheme grant (of 80% of the monthly contract value, up to a maximum of £2,500) to be applied for by the 'fee payer' – based on the amount run through their payroll as deemed earnings of the director. As this would be passed on to your limited company by the fee payer, it would not then be appropriate for you to make a Job Retention Scheme grant claim based on that same money, to the extent it was run through your own limited company payroll.
If the ‘fee payer’ can’t or won’t assist, but the money paid to your company (after deduction of PAYE tax and NIC) is then routed to you as salary via your own limited company payroll (which can be done on a tax/NIC free basis), then this salary should count as income for the purposes of your company (as the employer) claiming a grant under the JRS.
As this is so complex, you may want to seek advice or assistance from an adviser or accountant, if you do not have one already – we tell you how to find one on our website.
If you work in the private sector and are inside IR35, you may have structured your remuneration differently to the low salary/high dividend strategy, given your tax position at the end of the year, meaning there might have been more salary put through your payroll which will therefore support a higher JRS claim by your company. It does not appear to be possible for those that fall within IR35, but who calculate all their extra tax on a deemed payment at the end of the year through their tax return, to claim a higher level of support from the Job Retention Scheme.
What other support might I qualify for?
If directors don't qualify/claim under the JRS, they may need to claim welfare support, for example, through universal credit (UC).
UC is gradually replacing six other benefits (called legacy benefits) including tax credits and housing benefit. If any of these legacy benefits are already in payment, they will stop when a claim for UC is made.
Confusingly, for UC purposes, there is a look through the limited structure and directors of their own companies are usually treated as self-employed (UC is different in this respect to legacy benefits and income tax).
We explain more on our specialist website Revenuebenefits.
The government have announced that the 'minimum income floor' which can be applied to the self-employed under UC, has been temporarily suspended for claims from people while they are sick or self-isolating due to the coronavirus now and for all claims from 6 April 2020. If you are self-employed and making a new claim for UC, you do not need to attend a Jobcentre office to demonstrate you are gainfully self-employed.
If you are looking at claiming support through benefits, we strongly advise that youspeak to a welfare rights adviser where they will be able to go through things in more detail with you and help identify your best options. This is particularly important if you are already receiving any legacy benefits.
It may also be the case that a director's business may benefit from some of the business announcements made.
There is a Limited Company Director’s Support Scheme available in Northern Ireland.