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Directors, furlough and “statutory duties” – awaiting further clarification

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Justine Ricommini By Justine Riccomini, Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community)

7 April 2020

Main points:

  • The HMRC guidance on furlough for directors refers to the Companies Act 2006; directors may attend to statutory duties of the company whilst on furlough
  • This appears to clash with the notion that under furlough, employees are not allowed to work
  • ICAS is asking HMRC to clarify the position

Justine Riccomini explains why it is important for businesses to understand the term “statutory duties” for directors who are considering furlough under the Government’s COVID-19 Job Retention Scheme (JRS)

The HMRC Guidance

The guidance, which was updated by HMRC on 4 April 2010 states:

“As office holders, salaried company directors are eligible to be furloughed and receive support through this scheme. Company directors owe duties to their company which are set out in the Companies Act 2006. Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, the board can decide that such directors should be furloughed. Where one or more individual directors’ furlough is so decided by the board, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned.

Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose, for instance, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.

This also applies to salaried individuals who are directors of their own personal service company (PSC)”.

The conflict

The main conflict lies in the HMRC description of duties which are considered central to a director’s role when comparing it to the duties as set out at s. 170 et seq. of the Companies Act 2006. At section 172, the director has a duty to promote the success of the company. It is unclear how restricted these activities would be if the director was under furlough and they are not supposed to work.

Business continuity

In addition to this, there are some activities which are central to keeping a business going in emergency situations. It is not always possible to simply mothball a business and just retrieve it at a later date from the wardrobe. How can a director on furlough achieve business continuity in such circumstances?

ICAS – representing its members

ICAS is well aware that this is a very important consideration for its members and their clients and is calling for clarification of this from HMRC as a matter of urgency.

As soon as we are aware of any further information in this regard we will communicate it to members without delay.

Helping agents to support their clients through the COVID-19 crisis

By Charlotte Barbour, Director of Taxation and Susan Cattell, Head of Tax Technical Policy

1 April 2020

COVID-19 – VAT deferment and requirement for full digital links delayed

By Charlotte Barbour, Director of Taxation and Susan Cattell, Head of Tax Technical Policy

31 March 2020

2-23-marsh 2-23-marsh
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