Under the Government’s Coronavirus business support measures announced this week, it has been indicated that some Limited Company contractors may be covered by the ‘Job retention scheme’ and therefore can furlough themselves if unable to work due to Covid-19. There is a distinction in law between a director with a service contract and a director with an employment contract although we believe the statement below is intended to cover all directors. This was announced as part of the measures aimed at the self-employed that were announced by the Chancellor Rishi Sunak on 26th March. The HMRC guidance says:
“Those who pay themselves a salary and dividends through their own company are not covered by the<self-employment> scheme but will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes.”
The job retention scheme is a generous initiative that will allow an employer to “furlough” (temporarily lay off) a worker between 1 March 2020 and 31 May 2020 (although Rishi Sunak has announced this will be extended if needed). This is designed to help employers pay 80% of the salary of employees and is subject to a cap of £2,500 per month per employee.
To take advantage of the job retention scheme, your business will need to designate you (the employee) as a “furloughed worker” , and submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required). This system is being urgently set up as the existing HMRC systems are not set up to deal with these payments.
You can read more about the measures set up to support businesses during the Coronavirus pandemic here.