Coronavirus employment benefits options for small limited company directors
However, directors of limited companies have found themselves caught between a rock and a hard place when it comes to accessing support for themselves.
If you run a limited company business and receive some of your earnings through a PAYE scheme, then good news – you should be eligible for the government’s employee furlough scheme, the Coronavirus Job Retention Scheme (CJRS) for the employed.
This scheme entitles employees, which you technically are if you receive PAYE, to 80% of earnings that are received via PAYE up to a cap of £2,500.
When it was launched on March 23rd 2020, it was for a minimum of three weeks up to a maximum of the end of June. This has recently been extended to the end of July at 80% of earnings with a reduced level eventually being introduced along with a current final cut-off date at the end of October 2020.
To be eligible, the employee must have been on the payroll since 19 March 2020.
The trouble for many directors of smaller limited companies is that they only receive a proportion of their pay through PAYE – on average only £8,000 to £12,000 per annum (approx. £600 to £1,000 per month). Where applicable, other monies are drawn as dividends on top.
While in normal times this makes sense and is tax efficient, these aren’t normal times.
The CJRS does not count dividend payments as salary so only remuneration drawn through PAYE is counted in any furlough calculation.
This means that directors will only be entitled to 80% of this amount every month they are furloughed, not their full regular amount.
Critically, it’s also a precondition of the furlough scheme that any furloughed employees cannot work for the business during the furlough period.
This is in unfortunate contrast to the self-employed scheme which does allow self-employed directors and owners to work whether essential or at home and still benefit from the self-employed grant although the payments won’t begin until June.
To access the self-employment scheme, you must have been self-employed at anytime during the 2018/2019 tax year as HMRC will use this and previous filings to make any assessment of entitlements.
Limited company directors receiving any part of their salary through the company PAYE scheme are not considered to be self-employed under these circumstances and won’t be eligible for the Self-Employment Income Support Scheme.
You might be interested in another article where we examine ‘Should directors furlough or make themselves redundant’
There might be future overhauls of the tax system to address some of the issues that will appear in the next few months but there won’t be anything forthcoming in the near term.
What are your options?
Your business may be able to access some additional funding or support through the various grants, loans and relief schemes that government has announced to date.
Essentially the key announcements are:
- Coronavirus Business Interruption Scheme
- Business rates holiday and/or cash grants for retail, hospitality and leisure businesses
- Small Business Grants
- Support for businesses paying tax
- VAT Deferrals
What if I can’t make it work? – The worst-case scenario
If the coronavirus and lockdown means your business isn’t viable moving forward and your only real option is to stop trading and close it, then you do have options available.
Get in touch with us today and one of our team of expert advisors will arrange a free initial consultation with you to go through what they are.
They can review your situation and work out with you what the easiest and most stress free course of action will be.
Additionally, If you’ve been receiving some salary through your company’s PAYE and have been employed by the company for more than two years, then you’d be entitled to redundancy pay if the company subsequently goes into liquidation.
Our friends at Redundancy Assist will be able to talk you through everything you can claim.
And why not? In the white heat of running a company in these unprecedented days, directors might forget that they are employees too and just as lawfully entitled to redundancy pay, owed holidays and pay arrears as anybody else.
The companies and people that will have the best chance of thriving and surviving in the future will be the ones who are pragmatic in these next few weeks – even if it means taking action they have previously eschewed for whatever reason.
If you take you and your business’ future seriously then start today by catching up with all the information in our special Coronavirus business support section and getting in touch with us to act on it.