PHTM COVID-19 BULLETIN
If the director’s company is adversely affected by COVID-19, the director has the following options, depending on the circumstances:
POTENTIAL INSOLVENCY
The government has announced that it will temporarily suspend the wrongful trading rules, backdated to 1 March 2020.
Pre-COVID-19 wrongful trading rule
• If the company becomes insolvent: the director must immediately take advice from a qualified insolvency practitioner.
• As a director you should not allow the company to continue to trade on whilst you are knowingly insolvent: you potentially become liable for your company’s debts, including amounts due to HMRC.
NEW MEASURES: AS ANNOUNCED ON 28 MARCH 2020
“Relaxation of these wrongful trading rules will reassure directors that the difficult decisions they have to make about the future viability of their business will not have to be unduly influenced by the exceptional circumstances which are entirely beyond their control.
“Legislation to introduce these changes will be introduced in Parliament at the earliest opportunity. Provisions will be included to enable the changes to be extended if necessary.”
FURLOUGHING
• The earliest start day of a furlough is 1st March 2020.
• The furloughed employee must have been employed on 28th February 2020.
• Any contract type is eligible, including part- time workers, those on zero-hour contracts and agency workers.
• Employees on reduced but non-zero hours are not eligible (these are employees who are still working, just less hours than normal)
• The employer must write to the employee to confirm they are furloughed.
• National minimum wage does not apply to furloughed workers as they are not working, with some exceptions.
• Employees cannot be both furloughed and on SSP, they are one or the other. Any employee off ‘sick’ will get SSP then can be furloughed. An employee self-
APRIL 2020
• Earnings are based on the higher of the earnings in the same period last year and the average of the last 12 months.
• Bonuses, commissions and fees are not included in the earnings calculation.
• The employer does not have to pay more than the 80% figure.
• The payments are still subject to all the normal wages deductions, e.g. tax, NI, automatic enrolment.
• Employers can also reclaim the associated employer NI and minimum automatic enrolment (AE) employer pension for the 80% figure.
• If you cannot afford to keep your employees on after the furloughed period ends, you can make them redundant.
CAN YOU FURLOUGH A SOLE DIRECTOR?
• In deciding whether to furlough a director in respect of their duties as a company officer, it is assumed that the director will not be furloughed in respect of their duties as an officer of the company. This is because a company cannot operate without its director and all directors have ongoing fiduciary duties to their companies.
• It is suggested that most companies will need to have someone on hand, to handle on-going administration, such as post, bookkeeping, tax filings and banking. We see no reason why a company cannot go into a ‘COVID-19 hibernation’ meaning that the director would have no day-to-day employment type duties during that period but we are uneasy recommending that a sole director is laid off completely as they still have to undertake their statutory duties. In such cases part-furloughing is possible: duties as an employee would be furloughed. Statutory duties would not be furloughed. In most cases statutory duties are not onerous. In terms of contracts, this would be evidenced by two contracts: a service contract and an employment contact.
• HMRC states that ‘If an employee is working, but on reduced hours, or for
SALARY OR DIVIDENDS?
• There is no scheme in place for the government to provide financial support to shareholders where the amount of their dividend is affected by the COVID-19 crisis.
• If a company can no longer afford to pay dividends, it may be insolvent; directors should take appropriate advice.
• If the company decides to change the terms of the contract in order to pay a salary instead of a dividend, this must be agreed contractually between the company and its director. As suggested above there should be a service contact which details the duties of a director as a company officer and an employment contract which covers duties as an employee.
Above all it needs to be remembered that a furloughed employee is not allowed to work for the employer during the furlough period. Depending on the type of business, a company director may well need to work in some statutory capacity during even a period of closure of the business.
ADDITIONAL SUPPORT FOR SMALL COMPANIES
• Employee job retention scheme: if you have other employees
• Grant funding: if you have a business premises
• Small business rate relief: if you have a business premises
• VAT payment deferral • Emergency bank loans • Extension of Companies House filing deadline.
NOTES
All directors are required under the Companies Act to have a service contract that must be available for general inspection at the Company's registered office.
A director is an office-holder. Although this does not automatically make him an employee in terms of employment law, it does for tax purposes.
17
• Furlough lasts a minimum of three weeks and a maximum of three months.
• The maximum allowable earnings figure is £2500 per month.
• It is for the employer to agree the terms of any modification to an employment contact and for the directors to act in the best interests of the company. This may include furloughing any member of staff.
isolating due to guidance can be furloughed.
• Employees who are on or plan to be on Maternity Leave will get the normal SMP.
reduced pay, they will not be eligible for this scheme and you will have to continue paying the employee through your payroll and pay their salary subject to the terms of the employment contract you agreed.’
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112
