Can a director be furloughed under the job retention scheme?

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.