Small company directors that were not able to claim under the Coronavirus Job Retention Scheme (CJRS) because they paid themselves an annual salary in March 2020 may now be eligible to claim under the scheme.
Many directors missed the cut-off date on 19 March 2020 to be eligible for the first and second iterations of the furlough scheme. However, if those directors paid themselves a salary between 20 March and 30 October 2020, then they can claim furlough pay under the third iteration of the CJRS (November 2020). Issues may arise in how to calculate these claims based on a single annual payment of salary because of the monthly pay cap of £2,500.
HMRC has now published two examples on their website illustrating how furlough claims should be calculated for annually paid directors, with both of these stating that they should be based on “day counts”.
It should also be noted that HMRC views directors as ‘fixed-rate’ employees, even though the pattern of payment may vary. Official guidance states that an individual is classified as a fixed-rate employee if they are ‘entitled under their contract to be paid an annual salary’.
If a director has changed their pay pattern to monthly payments for the 2020/21 tax year then they will be eligible for the CJRS from November 2020, which will be calculated as though the director is a fixed-rate employee.
Official eligibility criteria states that if the director received their annual salary payment in December 2019 then they will be eligible for the CJRS in April 2020, and then again in November 2020.
However, to qualify for the third iteration of the furlough scheme (from November 2020), the April 2020 claim must be paid to the director as salary, which is then reported in a Real Time Information (RTI) return made between 20 March and 30 October 2020.
Crucially, a CJRS claim should not be made until a payroll run is imminent. HMRC gives the example of a director not due to be paid until 30 March 2021 and says that if the employer makes a CJRS claim in an earlier pay period, they will need to pay the director and run payroll earlier than usual.