Opportunities for directors to address exclusion from furlough provision

2nd June 2020

In line with government advice, millions of employees have been furloughed in the circumstances of the Covid-19 pandemic. HMRC’s figures show as of 24 May 2020, over 8.4 million people have been furloughed. Whilst this emergency support scheme is a lifeline to many, there are those who, through no fault of their own, may risk falling through the cracks – Tim Ward suggest that all is not lost.

Many directors who furloughed themselves on the guidance of the government have since realised they are ineligible. Thousands of directors of limited companies pay themselves a small salary which, at the end of the year, is topped up with a dividend; a cut of the profits.

To be eligible for the scheme, a Real Time Information (RTI) submission relating to payments of earnings in the 2019/2020 tax year must have been submitted to HMRC by 19 March 2020. As 31 March year-ends are very common, this means many inadvertently missed the furlough cut-off date and so may be ineligible. Counterintuitively, an individual who set up a business in February and submitted payroll details to HM Revenue & Customs would qualify for furlough support, whereas a well-established business that pays its directors annually after 19 March would not.

The use of RTI submissions to assess eligibility for furlough is part of the government’s stated aim of helping the greatest number of people as quickly as possible, balanced against the need to prevent of fraud. Yet whenever a line is drawn in the sand, it is inevitable that some will be caught on the wrong side. In this case, this includes those paid an annual salary in the 17 days falling between 19 March and 6 April.

The government, after being presented with compelling cases of those previously excluded, including submissions and lobbying by HCR, did listen, and shifted the cut-off date from 28 February to 19 March. In doing so, 230,000 previously excluded workers were brought into scope.

Questions have already been raised in Parliament on this, and the Institute of Directors is now campaigning for financial support to be extended to those small businesses currently excluded from support. HCR would be pleased to make further submissions with the ambition of achieving a further shift, should clients wish.

With 5 April now passed (and with it the risk of less scrupulous directors artificially inflating their salaries to increase their claim under the CJRS), there may be scope for further lobbying, to inform government understanding using real case studies, and to secure agreement to push the cut-off date back further still – for example, to allow all those who received income in the tax year 2019/2020 to be furloughed. This would arguably be in line with the government’s stated intention of helping the greatest number of people.

However, time is of the essence. With 8.4 million employees furloughed, a million businesses currently claiming under the CJRS, and the government shifting focus to getting businesses open and people back into work, opportunities to achieve such change will inevitably decrease over time.

In the meantime, it is vital that small businesses consider the other significant support on offer, including the small business grant or business interruption loan schemes.

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