Can a Company Director be furloughed?

The term ‘Director’ is not defined in the Companies Act 2006 – it is simply provided that a director “includes any person occupying the position of director, by whatever name called.”

In recently updated guidance (4/4/2020) HMRC provided clarity over whether directors and office holders could be put on furlough leave (i.e. be furloughed). Until this guidance had been provided there was a lot of debate as to how directors would fulfil their statutory obligations to the company.

The advice confirmed that provided pay is through PAYE then directors can qualify for the Job Retention Scheme and companies can receive grant funding as already laid out by the scheme as with other employees.

Can I still work? 

Directors owe duties to their company which are laid out in the Companies Act 2006. The guidance says that “Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties of one or more of its salaried directors, the board can decide that such directors should be furloughed.”

When this decision is made it should be formally adopted as a decision of the company and recorded as such in the company minutes. This should then be confirmed in writing to the director(s) concerned – typically by way of a furlough agreement.

Where a furloughed director needs to carry out a piece of work to fulfil a statutory obligation then they can “provided they do no more than would reasonably be judged necessary for that purpose, for instance they should not do work of any kind they would carry out in normal circumstances to generate commercial revenue or provide services.”

This is of particular importance to people who trade through a limited company.

Non Executive Directors

A number of clients have asked us if they can furlough directors who may otherwise be known as “non-executive directors” e.g. whilst still on the payroll, they are not part of the day to day running of the business undertaking a role as an executive director would.

It is not easy to distinguish between the two sometimes, but an executive director is usually someone who carries out executive functions in the company and is a full-time employee of the company.  Conversely, a non-executive director may provide occasional support and guidance as an advisor, or look at the operations strategically, but on a day to day basis they would have no real involvement.

Whilst the rules don’t expressly say “non-executive directors are not eligible for the furlough scheme” the scheme does say that employers can use the scheme to “furlough employees” and therefore, a non-executive director won’t be eligible for furlough, because they are not an employee.

Does my business qualify?

The updated guidance for employers says that the scheme is for employers who “cannot maintain their current workforce” because of coronavirus. However, the guidance also says that “all employers are eligible to claim under the scheme and the government recognises different businesses will face different impacts from coronavirus.”

HMRC do not ask for evidence that a worker would otherwise have been made redundant. However, the guidance does say that “HMRC will retain the right to retrospectively audit all aspects of your claim.”

It is worth bearing in this mind that this scheme is not legislated, and HMRC do reserve the right to change the rules, audit and inspect any claims to ensure those being claimed for are eligible for the scheme.

Posted in Covid-19, HR Covid-19.