Director shareholders of small companies and COVID 19 assistance

COVID-19: Company Directors & Shareholders.

What government financial support is available to director/shareholders of small possibly one dircetor companies during the coronavirus crisis?

  • A director or company officer is an employee for PAYE purposes.
  • A director cannot claim the COVID-19 Grant for the self-employed by virtue of holding the office of a director.
  • It is possible for a company to furlough a director under the COVID-19 Job Retention Scheme.
  • There are potential issues for small companies to consider.
  • The government has temporarily suspended the wrongful trading in insolvency rules in order to allow companies to have a breathing space during the virus crisis.

If the director’s company is adversely affected by COVID-19, the director has the following options, depending on the circumstances:

Potential insolvency

  • The government has announced that it will temporarily suspend the wrongful trading rules, backdated to 1 March 2020.
  • Directors should though be mindful of their company's prospects and take appropriate advice where needed.

See COVID-19: Insolvency & Directors


Furloughing for normally employee type duties:

  • A director who was on the payroll and engaged under an existing written or verbal employment contract on 28 February 2020 may be furloughed.
  • HMRC guidance says that where a company board decides to furlough a director, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director being furloughed.

Can you furlough a sole director?

  • A sole director company will probably not wish to furlough a director in respect of their statutory duties. This is because a company cannot operate without its director and all directors have ongoing fiduciary duties to their companies.
  • A sole director company may furlough the director in respect of their employment duties.

Potential issues

  • Most companies will need to have someone on hand, to handle on-going administration such as post, bookkeeping, tax filings and banking. These kinds of duties can be performed by a director in his statutory capacity.
  • A company can go into a ‘COVID-19 hibernation’ meaning that the director would have no day-to-day employment type duties during that period.
  • A sole director cannot be laid off completely as they still have to be present to undertake their statutory duties. In such cases part-furloughing is possible: duties as an employee would be furloughed. Statutory duties would not be furloughed. In most cases, statutory duties are not onerous. In terms of contracts, this would normally be evidenced by two contracts: a service contract and an employment contract.
  • If you have two directors then one could be totally furloughed leaving the other in charge of statutory obligations.

HMRC guidance for employers states that:

  • "To be eligible for the grant, when on furlough, an employee cannot undertake work for, or on behalf, of the organisation. This includes providing services or generating revenue. "
  • "If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme."

A director must act in the best interests of their company. In the case of a single director-employee, you may furlough yourself but you must be unfurloughed if you start working to generate revenue.

Salary or dividends?

  • Employers must have been paying a salary through a payroll to be eligible for an Employee Retention grant.
  • Payments made to employees when furloughed will be calculated based on average monthly payrolled earnings for the 2019/20 tax year.
  • It needs to be remembered that a furloughed employee is not allowed to work for the employer during the furlough period. You may undertake training as a furloughed employee.

  • There is no scheme in place for the government to provide financial support to shareholders where the amount of their dividend is affected by the COVID-19 crisis.
    • If a company can no longer afford to pay dividends, it may be insolvent, directors should take appropriate advice.
    • If the company decides to change the terms of the contract in order to pay a salary instead of a dividend, this must be agreed contractually between the company and its director. As suggested above, we would normally expect to see a service contact which details the statutory duties of a director and an employment contract which covers duties as an employee.

Low salary example


The sole director of an events company pays themself a basic salary of £8,632 per year and the balance of their remuneration is made up by a dividend, calculated in March, based on annual profits to 31 March and paid on 5 April. The company is forced to shut down during March 2020 following COVID-19 restrictions.

The director can only be furloughed from the day that the company confirms they are being furloughed. This should be confirmed in writing. 

  • The amount claimed under the Employee Job Retention scheme in 2019/20 will be £8,632 divided by 12 and adjusted for the number of days worked in March, plus any employer pension contributions, there is no National Insurance to add as annual salary is less than the Employers' Secondary NICs threshold.
  • The amount claimed for 2020/21 would be presumably based on the same figures.
  • In terms of dividends: if the company has profits to 31 March it will be able to vote and pay a dividend. No amount of the dividend can be reclaimed from the goverment.

With no events booked for the forseeable future, the company has no income.

  • For April and May + the company can continue to claim under the Employee Job Retention scheme, until the scheme ends.
  • In terms of dividends: these can only be paid if the company has retained profits. If there are not profits, a dividend can only be voted again once the company returns to profitability.
  • The company could consider making a variation of the director's employment terms in order to increase the salary to market rate pay. We think that it would be incredibly difficult to find any commercial justification in increasing a salary of someone who is furloughed and it is likely that HMRC would decline to pay it on that basis. More guidance is required from HMRC on this point.
  • If the company has no retained profits, it may apply for bank funding in order to pay staff and the director. A bank is highly unlikely to offer loan funding to pay a dividend.

Additional support for small companies

  • Employee job retention scheme: if you have other employees.
  • Grant funding: if you have a business premises.
  • Small business rate relief: if you have a business premises.
  • VAT payment deferral.
  • Emergency bank loans.
  • Extension of Companies House filing deadline.

See our COVID-19: Financial support tracker for links.


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