Coronavirus – Qualifying for Job Retention Scheme

Answer:

This rule is known as the Contingent Worker Rule and is part of the IR35 Public Sector Furlough Scheme which is being co-ordinated by the Crown Commercial Service.

Where a personal service company (PSC) supplies services to the public sector and is caught by the IR35 rules, the individual worker (normally the company director) will appear on the payroll of the organisation paying the PSC. The Furlough money will still go to the PSC but is paid net of tax and national insurance as if the director had been a direct employee of the public sector client.

There is a lot of confusion at present because business owners that operate their businesses through a limited company often consider themselves as “self employed”. Technically of course they are not self employed they are in fact employees of their own limited company which is their employer and therefore they are not entitled to participate the self employed Coronavirus support systems.

Many small businesses have historically been set up as small limited company with the owner extracting a small salary with the balance of his remuneration being received through dividend. This has historically been a highly effective tax structure however in the case of the Coronavirus support network the limited liability status entity works against the business in terms of accessing support. Nevertheless, thankfully the position has been clarified in relation to owner managed directors who are now allowed to Furlough themselves and the company will be able to claim a cash grant from the Government to cover part of the wages of the Furlough director under the CGRS.

However, if a decision is made to Furlough a director this decision should be formally adopted as a decision of the company, minuted in the company’s statutory books and records and properly announced in writing to the Furloughed director. The company can then claim 80% of the Furloughed directors salary up to a maximum of £2,500 per month.

However as stated above it is likely that most directors in this situation take a relatively small salary plus dividends from the company and unfortunately dividend income does not count as salary under the CJRS.

Importantly however, directors who are Furloughed are not allowed to work for the company however can carry out duties necessary to fulfil their statutory obligations which they owe to the company as a director.

The advice above is specific to the facts surrounding the questions posed.  Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.