COVID-19: Help for LTD company directors

As Covid-19 continues its disruption, we look at what help is available for LTD company directors.

If you're self-employed, you're no doubt aware of the Self-Employment Income Support Scheme (SEISS) that the government rolled out to help sole traders during lockdown. HMRC is now processing payments for some 2.3 million claims under the scheme, with many eligible sole traders expected to apply before the July deadline. But so far there has been little on offer for self-employed limited company directors.

It looked like LTD companies had been forgotten when SEISS was announced. While no financial help is directly available through grants, one possible route to support and are Bounce Back loans.  If you meet the criteria, you could apply if you've recently become self-employed or run a LTD company.

Bounce Back Loans

Bounce Back Loans could be a lifeline for small businesses which have been unable to access other financial help during the Covid-19 crisis, including LTD companies with sole directors. A Bounce Back loan provides up to £50,000 from accredited lenders. Read our quick FAQ on Bounce Back loans.

Business Interruption Loans

If you need to borrow more than £50,000, the Coronavirus Business Interruption Loan Scheme (CBILS) is more suitable. CBILS is more flexible than Bounce Back loans, as it enables businesses to borrow using alternative finance, such as overdrafts, asset or invoice finance.

Drawing money

There are two main ways a LTD company director can draw money from their company:

1. Salary- you pay yourself a wage via PAYE as an employee of the company
2. Dividends - if you're a director of a company and shareholder, you can pay yourself a dividend providing the company has sufficient profits

To maximise the tax benefits of running a LTD company, many company directors draw a combination of low salary and higher dividend.

What is the "Furlough" Scheme, and how does it work for LTD company directors?

Under the Coronavirus Job Retention Scheme (also known as the furlough scheme), the government has agreed to pay 80% of an eligible employee's salary up to £2,500 per month. This applies even if there is no work for the employee to do during the lockdown period.

A LTD company director who is on their company's payroll and is paid a regular salary by their LTD company can also furlough themselves. If you decide to furlough, you should consider the following:

• As with any furloughed employee, a director cannot officially carry out any work that would generate revenue for the company or provide services to clients on behalf of the company. Effectively, this means a company they have sole ownership of is closed for business.
• They can, however, carry out any statutory duties such as filing company accounts, or complete annual returns to companies house.
• There is no scheme currently in place to compensate for lost dividends as dividends are only payable if the company has made a profit.
• A LTD company is a separate legal entity from its owners. That means any sole director of a company may need to write an official letter from the company setting out the terms of a furlough agreement.
• Any furlough paperwork must be kept for a minimum of five years in case HMRC ask for it.

How does furlough work for LTD company directors and what is the criteria for receiving payment under the furlough scheme as a director?

• A director can only claim regular salaries that are paid to them as director of the company.
• A director can't claim for any discretionary commissions, bonuses or any benefits in kind that they receive from their LTD company. For instance, company cars or private medical insurance.
• A salary payment for the 2019/20 tax year must have been made prior to 19th March 2020. This payment information must have been submitted to HMRC via RTI on or before this date.
• If the company receives work while a director is on furlough, they need to come out of the furlough scheme to accept and start the work. As the minimum furlough period is three weeks, they will not be able to claim any money through the furlough scheme if it falls within that time.

If you are a sole director of your LTD company and are thinking of furloughing yourself, perhaps the most important things to remember is:

You are not officially allowed to carry out any work for your business.

It might be worth considering whether it's financially worth furloughing yourself. If your business has received new orders recently, applying for other forms of support such as a Bounce Back loan might be better.