I am a Director of an Owner Managed Limited Company, what about me?
We have received several enquiries from our clients and contacts, who are directors of their own limited companies, looking for guidance as to how they can receive the benefit of the financial support measures implemented by the government in response to the COVID-19 crisis.
This is a tricky area and the situation could change as new measures are introduced. We want to clarify how things stand, at present, for Directors of small Owner Managed Limited Companies and suggest some options to consider to maximise your situation.
Can I benefit from the Government Income Support Scheme for the Self-employed?
As a Director of a Limited Company you are likely to be on a mix of low salary and dividend, and therefore not classed as self-employed and so cannot benefit from this scheme.
Can a Director be furloughed and benefit personally from the Job Retention Scheme?
HMRC guidance has been updated to clarify that salaried company directors are eligible to be furloughed and receive support through this scheme.
However, it is important to note that whilst furloughed directors can carry out statutory obligations, they may do so provided they do not “do work” that would generate commercial revenue or provide services to or on behalf of the company.
i.e. Directors wouldn’t usually meet the criteria for this scheme if there is some business activity.
Where directors are to be furloughed, we recommend that a board minute to formally adopt the decision is prepared for the company records stating the reasoning for the decision and the period for which it runs.
If you are unsure and think you might be eligible, please feel free to call your usual contact.
Is there a scheme in place for those on low salary, high dividend to help cover our income when this has been affected by COVID- 19?
Presently, there is no scheme designed specifically for this situation however if anything changes, we will be the first to let you know. As a reminder, dividends can only be paid out of profits available for distribution. If your business has the reserves and the cash flow available, you will be able to continue to draw dividends.
You should be able to take some advantage of the Job Retention Scheme if you are a one or more director business and could furlough one or more of you whilst meeting the above criteria.
However, you will only be able to claim 80% of the minimum tax-efficient salary you are likely to have been receiving and will not be able to increase this to include dividends that you may regularly declare.
Additionally, if you have been paying your minimal salary on an annual payroll scheme then you will need to start paying this on a monthly basis from April and prepare a board minute to record the decision to pay monthly in order to facilitate a furlough claim.
Please do speak to your usual Rayner Essex contact to ensure that this is dealt with correctly.
Ok, so what other Government support is available to us?
Below we have summarised the various support measures available to you as a business and as an individual with links to further details on our website:
Company Support Measures
The deferral for VAT payments applies from 20 March 2020 until 30 June 2020 – taxpayers have until 31 March 2021 to pay any liabilities that accumulate during the deferral period and will need to make arrangements to pay this accumulated VAT.
Coronavirus Job Retention Scheme
Under the Coronavirus Job Retention Scheme, employers can claim a grant covering 80% of the wages for a furloughed employee, subject to a cap of £2,500 a month.
Coronavirus Statutory Sick Pay Rebate Scheme
The Coronavirus Statutory Sick Pay Rebate Scheme will repay employers, with fewer than 250 employees, the current rate of SSP that they pay to current or former employees for periods of sickness starting on or after 13 March 2020.
Small Business Grant Funding
Small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief
Grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
Business rates holiday
A 12-month business rates holiday for all retail, hospitality, leisure, nursery and estate agent businesses in England
The Coronavirus Business Interruption Loan Scheme (CBILS) provides financial support to smaller businesses (SMEs) across the UK that are losing revenue, and seeing their cashflow disrupted, as a result of the COVID-19 outbreak.
HMRC Time To Pay Scheme
All businesses in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service 0800 024 1222.
These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.
Individual Support Measures
Payment holidays’ of up to three months for those households adversely affected by COVID-19, the unpaid interest will still be recovered later, but individual credit ratings will not be affected.
Deferring Self-assessment payments
If you’re due to pay a self-assessment payment on account by 31 July 2020 but the impact of the coronavirus causes you difficulty in making payment by that date, then you may defer payment until January 2021
Please note that if your income was previously over £100,000 per year and you anticipate that for the 2020-21 tax year that your income will significantly drop and be below this level then you should contact HMRC and request that you PAYE code be amended to reflect the reduced earnings. The personal allowance is £12,500 in the 2020/2021 tax year but you will lose £1 of personal allowance for every £2 of Income over £100,000. Anyone with income over the £123,000 will lose their entire allowance.
I am worried about both the company and my personal cash flow, what should I do?
This is rightly a huge concern and it is important to ensure you maximise your cash flow as much as possible. To help with this we have produced an article with some tips and advice for protecting your cashflow. If you would prefer to discuss this over the phone then please don’t hesitate to contact the team at Rayner Essex.
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