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COVID-19 support for Limited Company Directors/PSCs – Coronavirus Job Retention Scheme (CJRS)

by | Apr 9, 2020 | COVID-19

November 2020 Furlough Scheme update

On November 2020, the Government has announced that the Coronavirus Job Retention Scheme, aka the Furlough Scheme, will be extended due to a second national lockdown. As a result, the Coronavirus Job Support Scheme will be postponed until March 2021, the end date of the current Furlough Scheme.
Click here for further details.

The Government has announced a number of initiatives to help limited company owners (including PSC contractors), employees and the self-employed through the Coronavirus outbreak. Whilst there are certainly gaps, these measures will go some way to managing the economic pressures of the pandemic and avoid the mass unemployment we’re now seeing reported in the US.
We have prepared a series of articles to explain what the schemes mean to contractors and small businesses, extracting the information that’s most relevant to you.  Here we look at the Coronavirus Job Retention Scheme which is applicable to contractors and directors of small businesses with no additional employees, looking at who can access the scheme and how.

What is the Coronavirus Job Retention Scheme (CJRS) and how do you access it?

The Coronavirus Job Retention Scheme (CJRS) aims to help employers avoid the need to make their staff redundant by offering temporary leave, also known as ‘furloughing’.

You can use the scheme to furlough employees if you have them or if you are the only employee and director of your limited company, you can, in effect, furlough yourself.

Grants of 80% average pay

What the CJRS scheme allows you to do is claim a Government grant of 80% of your usual monthly wages, up to a maximum of £2,500 per month. The grant is subject to tax and National Insurance in the usual way, though the Employers’ National Insurance and any mandatory employers’ pension contributions elements can also be claimed back, if applicable.

If you are an employee of your own limited company and using the scheme to furlough yourself because your work has temporarily ceased, then it’s important to be clear about the income you should expect to receive. If like most limited company directors, you have paid yourself via a small salary (circa the personal allowance threshold), topping up your income with dividends, then the amount you receive will reflect 80% of the salary element only. This is likely to be in the region of £575 per month.

For more details, check our updated blog post about Dividend tax rates and thresholds for 2020/21.

Example
If a director was paid £719 all through the 2019/20 tax year and opted to furlough themself from 1st March 2020. The amount that would be claimable from HMRC would be 80% of £719, or simply £575.20.

You could opt to continue to pay the same salary to yourself, there is no particular need to drop this down to £575.20 unless you have other reasons for doing so.

You need to be aware that anyone who is furloughed cannot undertake any work during the furloughed period. This includes ‘providing any type of service or generating revenue on behalf of the company, so you would need to think twice before doing any personal marketing or pitching for work during the furloughed period.

How grants are processed?

Claims for the grant will need to be made online when the system becomes available towards the end of April. When preparing to make your claim, please contact us for advice and support to ensure you are claiming the correct amount. CJRS payments should be included when calculating your income tax and corporation tax profits.

Before you make your claim you will need the following to hand:

  • Your name, phone number, and ePAYE reference number.
  • The number of employees being furloughed.
  • The claim period & the amount claimed.
  • Your bank account number and sort code – HMRC will reimburse you directly.
  • The furlough rules

    The CJRS scheme is available to employees furloughed for March, April and May but may be extended if necessary.
    If you furlough yourself, it’s important to be aware that the minimum furlough period is three consecutive weeks, though you can furlough yourself several times if that’s appropriate to your circumstances.

    Additionally, you need to be aware that anyone who is furloughed cannot undertake any work during the furloughed period. This includes ‘providing any type of service or generating revenue on behalf of the company, so you would need to think twice before doing any personal marketing or pitching for work during the furloughed period. You can, however, carry out ‘particular duties to fulfil the statutory obligations (you) owe to (your) company’ which includes maintaining your financial records. You can also carry out training.

    There are a number of other initiatives in place which could help ease your cashflow at present. Get all the details about the various schemes, available to you, on our latest cashflow guide.

    You can read the complete guidance on the Coronavirus Job Retention Scheme here but if you have any questions about how it relates to your specific circumstances, please don’t hesitate to get in touch.

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