Covid 19 Limited Company Directors and Dividends
Limited Company Directors – the situation isn’t really clear cut and we still hope for further announcements but we’d not hold our breath on that one.
Limited Company Directors include contractors, consultants and other off payroll workers who provide their services to an organisation via a personal services company (PSC) which is usually set up as a limited company.
Typically they are the director of the PSC and pay themselves a small amount in PAYE salary, drawing the rest as dividends from the company. They do not fall into the government’s self employed income support scheme, offering a taxable grant of up to 80% of an individual’s average monthly profit over the last three up to a maximum of £2,500 a month for self employed traders and the members of a partnership who have filed tax returns showing average profits below £50,000 for the previous three years.
This group are individuals who have their own company and have taken their income from the company as a small salary and the rest as dividends.
Since dividend income is not classed as self-employment income for the purposes of the self-employed income support scheme there will be no additional support and such individuals will get much less than they might have hoped for.
Directors of limited companies are, in some cases, eligible to make a claim under the coronavirus job retention scheme, which offers employers support for a salary subsidiary reimbursing 80% of furloughed workers wage costs, up to a cap of £2,500 per month.
Under the latest guidance, it is clear that employees can rotate around periods of furlough and work, provided that each period of furlough lasts for a minimum of three weeks.’
On the specific issue of directors of limited companies Directors can be furloughed provided they meet the definition of who can be furloughed e.g. must be an employee on PAYE and on the payroll on 28 February 2020. Some directors will meet the PAYE criterion, some won’t. They will only get 80% of basic pay though, and they can’t do any work for the business during furlough.’
This means that directors of limited companies would be able to claim 80% of their PAYE payments, but would not be able to work while doing so, and their dividend payments which make up the bulk of their income will not be taken into account. This probably means them only being eligible for around £575 a month if they pay themselves around £719 a month through PAYE
It’s complex so please feel free to call us anytime and we’ll try and clarify each individual situation