Coronavirus (COVID-19)—do the furlough provisions apply to company directors and members of LLPs?

Coronavirus (COVID-19)—do the furlough provisions apply to company directors and members of LLPs?

The Coronavirus (COVID-19) Job Retention Scheme (CJRS) is a temporary scheme in place for three months starting from 1 March 2020, but it may be extended if necessary and employers can use this scheme anytime during this period (see Practice Note: Coronavirus job retention scheme and also the official guidance for employers and guidance for employees.

Office holders can be furloughed and receive support through the CJRS.

The furlough, and any ongoing payment during furlough, will need to be agreed between the office holder and the party who operates PAYE on the income they receive for holding their office.

Where the office holder is a company director or member of a limited liability partnership (LLP), the furlough arrangements should be adopted formally as a decision of the company or LLP.

Company directors

As office holders, salaried company directors are eligible to be furloughed and receive support through the CJRS.

Company directors owe duties to their company which are set out in the Companies Act 2006 (see Practice Note: Directors' duties—a quick guide). 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.

If the company is listed on the Main Market of the London Stock Exchange, the decision will amount to an ‘important change to the role, functions or responsibilities of directors’ which must be notified to the market as soon as possible and in any event by the end of the business day following the decision (Listing Rule 9.6.11R). Companies admitted to AIM are advised to similarly consider AIM Rules 11 and 17.

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’. The guidance for employers states that, 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.

Salaried individuals who are directors of their own personal service company (see Practice Note: Personal service companies—the key benefits and key tax considerations) are also within the scope of the CJRS under these provisions.

Salaried members of LLPs

Members of LLPs who are designated as employees for tax purposes (‘salaried members’) under the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) are eligible to be furloughed and receive support through the CJRS.

The rights and duties of a member of an LLP are set out in an LLP agreement and, in the absence of an agreement, default provisions in the Limited Liability Partnerships Act 2000, based upon company and partnership law. Such an agreement may include separate agreement between the LLP and an individual member setting out the terms applicable to that member’s relationship with the LLP.

To furlough a member, the terms of the LLP agreement (or any such agreement between the LLP and the member) may need to be varied by a formal decision of the LLP, for example to reflect the fact that the member will perform no work in the LLP for the period of furlough, and the effect of this on their remuneration from the LLP. For an LLP member who is treated as being employed by the LLP (in accordance with ITTOIA 2005, s 863A), the reference salary for this scheme is the LLP member’s profit allocation, excluding any amounts which are determined by the LLP member’s performance, or the overall performance of the LLP.

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