Directors paid annually – Furlough Update

The Coronavirus Job Retention Scheme allows employers to claim cash grants of up to 80% of wages (capped at £2,500) for furloughed workers. In the most recent furlough update to HRMC’s guidance, there is a clarification relevant to directors that are paid annually.

The guidance confirms that company directors who are paid annually are eligible to claim, as long as they meet the relevant conditions for the scheme. A number of directors (usually sole directors/shareholders) of small businesses pay themselves a salary just once a year.

The scheme is set-up to allow back-dated claims to 1 March 2020 and is currently running from 1 March 2020 to 30 June 2020. To claim, directors must have been on the PAYE payroll on or before 19 March 2020. This means that the directors’ annual pay must have been notified to HMRC through an RTI submission on or before 19 March 2020 in relation to a payment of earnings for the 2019-20 tax year.

However, the financial support offered to directors under the scheme is based only on their salary, not salary plus dividends. Most sole directors of limited companies take a small salary and top up with dividends to extract the majority of their income. In order to furlough themselves, directors must also play no active role in their businesses, apart from being allowed to complete limited statutory duties.

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