Had you ever used the word Furlough before coronavirus? I bet you have now! Furlough is the buzzword as coronavirus hits businesses and the lack of income means that many don’t need staff at the moment, or can’t afford to pay them.

But one of the big questions for the owners of smaller businesses is “Can I furlough myself?” So, we thought we’d record a video to answer this…..or you can read about it below.

Now, the mechanics of furloughing and reclaiming are covered in a separate blog that you can read here – here we simply look at whether a Director can be furloughed.

Can a Director be furloughed?

At it simplest – yes. However, there are a number of things to consider.

What does furloughing mean?

Step 1 is to briefly look back at what furloughing means.

The phrase comes from the Government’s Coronavirus Job Retention Scheme. This was announced by the Chancellor in March as one of the key measures to help the economy and protect jobs.

It was recognised that businesses wouldn’t be able to afford to keep all their staff on and that, therefore, coronavirus would lead to a lot of redundancies and unemployment. Therefore, the Government decided to step in with an alternative – the Furlough.

Here, the employees of the company will not have to be made redundant or laid off. Instead, they can be “furloughed”. This means that they will remain an employee but won’t do any work for the company for a period of time. During this time, the Government will pay 80% of an employee’s gross pay.

How does it work for a Director?

The tricky part for a Director, and especially for a small one-Director company, is the fact that you shouldn’t do any work.

The wording is that the employee should not generate revenue for, or provide services to, the business.

This is pretty difficult when it’s your business.

However, further guidance is provided for Directors that you can still carry out your statutory duties.

I’m going to use the official wording here:

Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose, i.e. they should not 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.

This also applies to salaried individuals who are directors of their own personal service company (PSC).

What are a Director’s statutory duties?

Firstly, you’re legally responsible for running the company and making sure all Companies House and HMRC filings are submitted, for example your accounts and tax returns.

You then have seven duties under the Companies Act:

  1. You must follow the company’s constitution and its articles of association. These are written rules about running the company, agreed by the members, directors and the company secretary.
  2. You must act in the company’s best interests to promote its success.
  3. You must use independent judgement – you must not allow other people to control your powers as a director.
  4. You must exercise reasonable care, skill and diligence.
  5. You must avoid conflicts of interest.
  6. You must not accept benefits from a third party that are offered to you because you’re a director. This could cause a conflict of interest.
  7. You must tell the other directors and members if you might personally benefit from a transaction the company makes.

These are all fine, but don’t really give you definitive guidance right now when it comes to furloughing. So, what can you and can’t you do?

Using common sense, I would interpret the rules as allowing you to, for example:

  • Pay suppliers and monitor the bank account
  • File accounts and VAT returns
  • Review and/or run the payroll
  • Pay the staff
  • Claim any grants available from the Government for coronavirus
  • Attend online training to develop your skills, as this is specifically allowed in the furlough guidance

And, therefore, I would work on the assumption that you can’t:

  • Do the day-to-day job
  • Actively send and respond to emails
  • Market the business or network
  • Speak to customers

If you’re doing these, you’re working and can’t be furloughed.

This might develop as there is an argument that marketing follows Statutory Duty 2 about promoting success. But, for the moment, the general consensus is that this does constitute work and 1it appears that it’s better to be safe than sorry.

What documentation do I need to keep?

As with all furloughed employees, you will need appropriate letters to document the process and the date of the furlough. These must be kept for a minimum of 5 years.

For a Director, it also makes sense to prepare minutes of a Board Meeting to approve the furlough.

Is it worth it?

If you have been paying yourself the “standard” Director salary of £719 per month, the Government would pay 80%, or £575 per month.

To qualify for that, you’d need to do no proper work for your business.

This might work for you, but it might not be worth it. You may be eligible to claim Universal Credit but it may be that your savings stop you doing this. If you have more than £16,000 in savings, you won’t be eligible.

Either way, you do need to ask yourself whether you would rather spend the lockdown actively marketing your business and potentially generate more in sales than the furlough grant.

There’s no right or wrong and it will depend on your business.

If you have a restaurant that is shut, then the furlough could be the right move.

But if you have a business with ongoing customers, you might be better actively talking to them and keeping a good relationship to protect your sales for the future. Or spend the time marketing.

The key thing is that you do make an informed decision and understand what furloughing really means for a Director. And I hope this blog has helped you with that.

If you do have any further queries, please do get in touch.

And subscribe to our Youtube channel for more advice on managing your business through the coronavirus crisis.

More information

You can read our full blog on the Coronavirus Job Retention Scheme and Furlough here.

Full government guidance is available at https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-jobretention-scheme

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Any questions?

If you’d like a meeting or a Skype call to discuss this, please get in touch with your favourite Liverpool accountant