The Job Retention Scheme allows for 80% of a furloughed employee’s wages to be reclaimed from HM Revenue & Customs, providing they are doing no work for the business.

But what about company Directors? Can they be furloughed so that 80% of their wages are claimed where businesses are adversely affected by COVID-19?

We have been asked this question a number of times by clients over the past few weeks, particularly those that have seen work dry up completely as a result of the pandemic.

The difficulty here is that a key condition of the Job Retention Scheme is that furloughed workers must not carry out any work for the business while furloughed. The scheme was designed to fund 80% of the wages for employees that would have otherwise been laid off as a result of the impact of COVID-19 on the business.

So can a Director realistically do nothing while furloughed? They obviously have duties beyond those of a normal employee and therefore in most cases they will still be working for the business to some extent.

The guidance given on gov.uk is as follows:

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.

The guidance here is aimed towards companies with a number of Directors, and confirms that providing someone is still ensuring that the company’s statutory duties are being discharged, it would be fine for other Directors to be furloughed, if there is no work for them to do.

But what about sole Director companies? Is it possible for a sole Director to be furloughed where there is no work to do, but statutory duties still need to be discharged? One such statutory duty is “to promote the success of the company” which could include activities to secure work for when lockdown lifts.

The government issued a Treasury Direction document on 15 April 2020, signed by the Chancellor Rishi Sunak. This confirms that an employee is only a furloughed employee under the Job Retention Scheme if they have been instructed by the employer to cease all work in relation to their employment. In relation to Directors it goes on to confirm that:

Work undertaken by a director of a company to fulfil a duty or other obligation arising by or under an Act of Parliament relating to the filing of company accounts or provision of other information relating to the administration of the director’s company must be disregarded.

This suggests that only certain statutory duties relating to filing accounts and formal documents (eg. Confirmation Statement) are permitted for a furloughed Director.

So where does that leave us? The rules are open to interpretation, but it is quite clear than any Director carrying out work for their business cannot be furloughed. If they are not doing any work for the business and are merely keeping an eye on the administration of the business, they should be OK, but anything much beyond that would seem to prevent a claim being made.

It’s also worth noting that the minimum period of furlough under the Job Retention Scheme which allows 80% of the salary to be reclaimed is 21 days. Where a business has no work at all due to the current conditions, it is quite conceivable that a Director could be furloughed for 3 weeks without failing to discharge their other statutory duties, therefore allowing even a sole Director to claim.

A further point worth noting is that where there is more than one Director, it will usually be possible for just one Director to discharge the statutory duties, allowing the other/s to be furloughed.

For further advice on this matter, please contact your Client Manager.

This question comes up regularly from clients buying a new car, or a second-hand VAT qualifying one: Can the VAT be reclaimed?

In the majority of cases the answer is no, since there is a general block on recovering input VAT on the purchase of a car.However, there is an exception to this block if the car meets two conditions:

1. It is used exclusively for business purposes; and
2. It is not made available for private use.

These rules are very similar to those in relation to pool cars for income tax purposes, and they basically mean that VAT can only be reclaimed on the purchase of a genuine pool car with absolutely no private use.

Usually this will mean that the car is kept at the business premises overnight.

HMRC will usually accept a small amount of incidental private use, for example stopping off for a sandwich on the way back from a business journey, but beyond that they are highly likely to challenge any recovery of VAT on the car’s purchase.

Where members of staff use the vehicle then it would be advised to make the fact that no private use of the vehicle is permitted a condition of their employment, such that any breach could lead to disciplinary action.

As with income tax, and HMRC inspector would usually ask to see insurance documents and mileage logs to ensure that it is a genuine pool car.

Interestingly, the rules for recovering input tax on the monthly lease payments where a car is leased rather than bought outright differ as they allow 50% recovery of the input VAT on the lease payments where there is an element of private use of the vehicle. For this reason leasing company cars for members of staff can often work out cheaper than buying the car outright.

Most business owners will do some of their work from home, but what tax relief can they claim for this? An unincorporated taxpayer (i.e., a sole trader or partner in a partnership) may be able to claim a proportion of its costs for working from home for things like:

• Utility costs – gas, electric, water etc;
• Council tax
• Mortgage interest (or rent)
• Internet and telephone use

An appropriate proportion can be ascertained by finding a reasonable method of dividing the above costs between the areas of the property used by the business and those used personally. For example, by the number of rooms, and/or by the time spent working from home. Be careful though, as if you claim that one (or more) room is used exclusively for business to help bolster your proportionate claim for the above expenses, there could be a sting in the tail; when you come to sell your house and claim the private residence exemption from Capital Gains Tax then this can be restricted where parts of the house are used exclusively for business, which in turn could lead to an unwanted Capital Gains Tax liability. However, if the room has some personal use too (eg. the kids do their homework in the study sometimes) then this risk can be removed. As an alternative, in 2013 the government introduced a simplified basis for claiming some expenses, which included a flat rate deduction for home working costs where the taxpayer works 25 hours or more a month from home. This is designed to cover all of the above costs, except for internet and telephone costs which can be claimed in addition, and is as follows:

So what about employees and Directors? Unfortunately, the tax rules are tougher for employees and you have to consider whether the individual has to work from home, or chooses to work from home. Either way the claim will generally be lower than for the self-employed, as it is based on the additional costs incurred for home working, and not a proportion of existing costs. Again though, a simplified claim can be made of £4 per week (or £18 per month) without substantiation, with the business use proportion of home phone and internet costs on top.