We’re starting 2021 with some good news. Jaspreet Lally is…
Can company directors go on furlough?
It would appear that ‘yes’ is the short answer, but only under certain circumstances, and the newly issued guidance from HMRC is in itself still a little contradictory.
I’ll start by repeating HMRC guidance issued here in full:
“As office holders, salaried company directors are eligible to be furloughed and receive support through this scheme. Company directors owe duties to their company which are set out in the Companies Act 2006. Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, the board can decide that such directors should be furloughed. Where one or more individual directors’ furlough is so decided by the board, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned.
Where furloughed directors need to carry out particular duties to fulfill the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose, for instance, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company
This also applies to salaried individuals who are directors of their own personal service company (PSC).”
Let’s look at it a little more closely. The first paragraph seems clear enough, it drops unsubtle hints if there are more than one of you, and one director can keep the ship afloat and in accordance with the duties of the Companies Act 2006, you can furlough.
But maybe the second para introduces a bit of confusion, in stating that even directors on furlough can still carry out those statutory duties provided they don’t ‘do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company’. That reads to me no sales or marketing activities then, no coding, no sales, no staff meetings etc; and at least we now know that this also applies to directors of PSCs. Good news there then.
The Companies Act 2006
Call me simple, but I’m still confused. Let’s take a look at what those statutory duties actually are and specifically those defined in s172 of the Companies Act 2006; the ‘duty to promote the success of the company’. Sounds like good marketing and relationship management to me. Specifically, if we dig into s172 the director has a duty to:
“act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to— (a) the likely consequences of any decision in the long term, (b) the interests of the company’s employees,(c) the need to foster the company’s business relationships with suppliers, customers and others, (d) the impact of the company’s operations on the community and the environment, (e) the desirability of the company maintaining a reputation for high standards of business conduct.
So you have a legal duty to set yourself us as best as possible in the long term, ensure relationships are maintained, and maintain good business conduct, which would include – to me – responding to suppliers and customers, and also complying with other legal duties NOT enshrined in the Companies act, such as, for example, ensuring VAT returns are submitted on time.
In my opinion, directors of the world, if you feel furlough is appropriate for you, go for it whilst continuing to run the company as best you can. Just don’t sell, do, charge, or code. Let’s hope for still further clarity as time goes on…
It's nearly the end of 2020! We've been reflecting on this year and (since we are accountants!) it only seemed right to take a look at our year in numbers.
Please join us in welcoming Ryan to team Blu Sky!…