Are sole company directors applicable for the government’s coronavirus relief?
Eoin Holohan, an Accountant from MJH Accountancy, explains what you may be eligible for from the Chancellor’s announcement last month.
The Chancellor’s response to the Coronavirus has in the large been extremely helpful to both workers and businesses alike.
Some of the more eye-catching reliefs include:
- Coronavirus Job Retention Scheme to help PAYE workers. Here the government has committed to support up to 80% of workers salaries capped at £2,500 per month.
- Self-employed Income Support Scheme for non-PAYE workers. Self-employed workers can apply for a taxable grant worth 80% of trading profits again capped at £2,500.
- Small Business Grant Funding of £10k and grant funding of £25k for certain retail hospitality and leisure businesses.
I know what you are thinking: these are some very generous reliefs, the likes of which I have never seen before, but I am a limited company contract worker do any of those reliefs apply to me? The answer, I’m afraid, is maybe.
First let’s rule out what doesn’t apply to you. As you work through a limited company, you are not self-employed so that rules out the Self-employment Income Support Scheme. Also, the business grants are for rateable business – so let’s assume they don’t apply either.
The Job Retention Scheme
This leaves the Job Retention Scheme which is the assistance for PAYE employees. To find out if you are applicable for relief as the company’s sole director and employee, we will need to dive in some of the detail. Some criteria for applying for the grant as per the HRMC include:
You cannot maintain your current workforce because your operations have been severely affected by Coronavirus
Employees are not allowed to undertake work for or on behalf of the organisation during the furlough
Directors can carry out particular duties to fulfil statutory obligations they owe to the company. They should not do work they would carry out in normal circumstances to generate commercial revenue or provide services on behalf of their company.
Let’s assume a client has terminated your contract expressly due to coronavirus (you might have difficulties claiming if you’re contract has been terminated due to IR35 for example). Is looking for a new contract deemed to be work you carry out to generate commercial revenue? If so, then you would be deemed to fall outside this Scheme.
If after reading the guidance you are satisfied that you fall inside the Job Retention Scheme, then you will need to apply to HRMC for your grant. The 80% figure is calculated based on your monthly wage at 28 February. What was your Feb wage? As we all know, it can be tax efficient for limited company contractors to pay themselves a large portion of their earnings as a dividend as opposed to wage.
The answer to the question of can a limited company contract worker claim is yes. To find out if it is worth your while, I would calculate the maximum you can claim and then make your decision.
For more support from Eoin, check out MJH Accountancy’s guide to government support for business.