top of page
  • Writer's pictureGreenline Accountants


Updated: Apr 13, 2020

Many small companies are run by just one or two directors and have no other employees. We have had a few queries as to what support is available for such individuals , especially if they are shareholders too,

(adapted from original article by Nichola Martin - AAT - 08/04/2020)

The basics -

  • A director or company officer is an employee for PAYE purposes.

  • A director cannot claim the Coronavirus Grant for the self-employed by virtue of holding the office of a director.

  • BUT It is possible however for a company to furlough a director under the Coronavirus Job Retention Scheme HOWEVER there are potential issues to consider here (discussed below)

  • There is no grant support to cover dividends usually taken by shareholders (very often the same people as directors on small companies)


Furloughing of directors is essentially split between employee type duties ans statutory duties

So furloughing for normally employee type duties will involve :-

  • A director who was on the payroll and engaged under an existing written or verbal employment contract on 28 February 2020 may be furloughed.

  • HMRC guidance says that where a company board decides to furlough a director, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director being furloughed. We strongly advise getting all your paperwork in order for the furlough scheme as we are expecting HMRC to run checks.

For Sole directors

  • A sole director company will probably not wish to furlough a director (themselves) in respect of their statutory duties. This is because a company cannot operate without its director and all directors have ongoing fiduciary duties to their companies.

  • But a sole director company may furlough the director in respect of their employment duties.

Potential issues

  • Most companies will need to have someone on hand, to handle on-going administration such as post, bookkeeping, tax filings and banking. These kinds of duties can be performed by a director in his statutory capacity.

  • A company can go into a ‘Coronavirus hibernation’ meaning that the director would have no day-to-day employment type duties during that period and therefore furloughed

  • A sole director cannot be laid off completely as they still have to be present to undertake their statutory duties. So 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 normally be evidenced by two contracts: a service contract and an employment contract.

  • If you have two directors then one could be totally furloughed leaving the other in charge of statutory obligations.

HMRC guidance for employers states the following.

  • "To be eligible for the grant, when on furlough, an employee cannot undertake work for, or on behalf, of the organisation. This includes providing services or generating revenue."

  • "If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme."

A director must act in the best interests of their company. In the case of a single director-employee, you may furlough yourself but you must be unfurloughed if you start working to generate revenue.

In summary, Ben Kerry, head of Labour Markets at HM Treasury stated " I understand they* (*directors/owner/managers) will have some statutory duties such as filing accounts and they will still be allowed to undertake those statutory duties while being furloughed and so would not count as doing work"

S0 the important distinction to make is between what is a statutory duty (can be done while furloughed) and what is an employment duty (cant be done while furloughed)

The difference between salary and dividends

Remember - Salary is a regular wage paid to an employee, in this case the director, for performing employee and statutory duties.

Dividends are rewards to shareholders and are a distribution from profits

  • Employers must have been paying a salary through a payroll to be eligible for an Employee Retention grant.

  • Payments made to employees when furloughed will be calculated based on average monthly payroll earnings for the 2019/20 tax year.

  • It needs to be remembered that a furloughed employee is not allowed to work for the employer during the furlough period. You may undertake training as a furloughed employee.

  • 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 pandemic.

  • 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. However we would expect HMRC to challenge any such changes designed to exploit the furlough grant scheme.

Low salary example


The sole director of an events company pays themselves a basic salary of £8,632 per year and the balance of their remuneration is made up by a dividend, calculated in March, based on annual profits to 31 March and paid on 5 April. The company is forced to shut down during March 2020 following Coronavirus restrictions.

The director can only be furloughed from the day that the company confirms they are being furloughed. This should be confirmed in writing.

  • The amount claimed under the Employee Job Retention scheme in 2019/20 will be £8,632 divided by 12 and adjusted for the number of days worked in March, plus any employer pension contributions, there is no National Insurance to add as annual salary is less than the Employers' Secondary NICs threshold.

  • The amount claimed for 2020/21 would be presumably based on the same figures.

  • In terms of dividends: if the company has profits to 31 March it will be able to vote and pay a dividend. Again - dividends are not covered by government grants.


Assume that due to the pandemic, the company has no income.

  • For April and May, the company can continue to claim under the Employee Job Retention scheme, until the scheme ends.

  • In terms of dividends - these can only be paid if the company has retained profits. No profits (retained or ongoing) = No dividends

  • The company could consider making a variation of the director's employment terms in order to increase the salary to market rate pay. However professional bodies are ointng out this would likely be challenged by HMRC as taking advantage of the furlough scheme and therefore rejected for grant.

Also remember the other support for small companies - infomation on which can be found on the COVID - 19 section of our website - Including

  • 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.

  • Temporary suspension of the wrongful trading in insolvency rules in order to allow companies to have a breathing space during the virus crisis. - Although directors should be mindful of their business prospects once ouyt of the pandemic and come to us to seek proper insolvency advice via our reputable business recovery partners should they be concerned about the future.


Os comentários foram desativados.
bottom of page