⚠️ 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 was a lot of confusion over what support such people could access during the current coronavirus situation – the Self-Employed Income Support Scheme, the Job Retention Scheme, both or neither?
The schemes have now come to an end, however we have retained this information for anybody who wants to check their historic position.
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 did not typically qualify for the Self Employed Income Support Scheme (SEISS). To understand more about this, see the warning we gave 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 could potentially access the Job Retention Scheme provided all the relevant conditions were met.
One of the conditions was that the employer could only claim for employees who were on furlough. This could 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 have been 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, there was no government support available specifically to cover loss of this type of income.
The Job Retention Scheme closed on 30 September 2021.
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.
The JRS was subsequently extended from 1 November to 30 April 2021. The eligibility criteria for this extension stated that, from 1 November, employers could 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 meant that end of March annually paid directors could qualify for the JRS from 1 November 2020 to 30 April 2021, as long as they received a payment at the end of March 2020.
Directors paid at other points in the year – for example end of December, were still not eligible for support from the JRS in the period 1 November 2020 to 30 April 2021.
However they may have been eligible for support from 1 May 2021 as employers could claim for employees who were employed on 2 March 2021, as long as they made a submission to HMRC between 20 March 2020 and 2 March 2021.
How did furloughing work for directors?
One of the conditions of the JRS was that the employer (in this case the company) must have ‘furloughed’ the employee. This usually meant that the employee could do no work for the employer for the time they were furloughed. However, director/employees could furlough themselves provided they were only undertaking minor statutory/administrative directorial duties in that time, and not providing services or undertaking revenue generating work. This was 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.
Under the scheme extensions from 1 November 2020 to 30 April 2021 and 1 May 2021 to 30 September 2021, employers were able to claim for employees who were furloughed (including flexibly furloughed) even if they had not previously been furloughed.
The Job Retention Scheme closed on 30 September 2021.
How could I make a JRS claim?
The main information you would have needed was the company payroll records.
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 was self-employed under IR35/the off payroll rules?
The IR35 rules/off payroll rules may have caused some confusion as to whether the SEISS could 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 paid ‘extra’ tax because I worked in the public sector or was inside IR35?
If you worked via a limited company in the public sector, under the off-payroll working rules, it may have been the case that your company invoices were being paid after deduction of PAYE tax and National Insurance by the ‘fee payer’.
HMRC’s guidance suggests it would have been 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 have been passed on to your limited company by the fee payer, it would not then have been 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 you worked in the private sector and were 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 have supported a higher JRS claim by your company. It was not 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?
Directors can 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 announced that the ‘minimum income floor’, which can be applied to the self-employed under UC, was temporarily suspended for all claims from 6 April 2020 until 31 July 2021 and the rules are being gradually re-introduced from 1 August 2021
If you are looking at claiming support through benefits, we strongly advise that you speak 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 has been a Limited Company Director’s Support Scheme available in Northern Ireland.