With the support for Self-employed and the job retention scheme for employees, limited company directors could get caught in a gap between the two schemes.
This group contains contractors, consultants and other off payroll workers whose services to an organisation are provided through a limited company or a personal services company. With the norm being that they pay themselves a small salary via PAYE and draw the rest as dividends from the company, thus ensuring a tax efficient wage in total.
Many had been hoping for help from the government’s self employed income support scheme, offering a taxable grant of up to 80% of an individual’s average monthly profit over the last three years up to a maximum of £2,500 a month for self employed traders and the members of a partnership who have filed tax returns showing average profits below £50,000 for the previous three years. However company directors are not self employed, they are technically employees of their own company.
Since dividend income is not classed as self-employment income for the purposes of the self-employed income support scheme there will be no additional support and such individuals will get much less than they might have hoped for.
Limited company directors, in some cases, eligible to make a claim under the coronavirus job retention scheme, which offers employers support for a salary subsidy reimbursing 80% of furloughed workers wage costs, up to a cap of £2,500 per month.
Job Retention Scheme
The scheme has been put in place to help employers who are unable to provide any work to their employees because of Covid-19 without having to resort to lay off or redundancy.
The guidance confirms that any UK organisation can access the scheme, including charities and public authorities, but mentions that the public sector is not expected to make use of the scheme if employers are receiving public funding.
Directors of Limited companies
Directors can be furloughed provided they meet the definition of who can be furloughed e.g. must be an employee on PAYE and on the payroll on 28 February 2020. This will mean that some directors will meet the PAYE criterion, some won’t. They will only get 80% of basic pay though, and they can’t do any work for the business during furlough.
An HMRC spokesperson confirmed: ‘People who are paid a salary by PAYE can be furloughed for the job retention scheme but dividends are not covered by that or the self employed scheme.’
This means that directors of limited companies would be able to claim 80% of their PAYE payments, but would not be able to work while doing so, and their dividend payments which make up the bulk of their income will not be taken into account.