Rules for furloughed directors ‘muddled and contradictory’

The government has been accused of providing conflicting advice over what activities directors can carry out while furloughed.

Yesterday, the Treasury published new instructions that has been described by the Institute of Directors (IoD) as more restrictive than HMRC’s coronavirus job retention scheme guidance available online.

The IoD said the new edict appeared to prevent a furloughed director – where no other director is available – from carrying out basic tasks such as paying suppliers and administering the furloughing of other employees.

This would make life particularly difficult for smaller companies it said, and it has called for adjustments to the job retention scheme that would enable directors of small companies to continue working for the success of their company while furloughed.

Ministers were accused of not fully appreciating the likely outcomes of its directions. Roger Barker, head of corporate governance at the IoD, said: “This new guidance appears to raise a whole host of unintended consequences. It’s hard to believe the government has thought through the implications for small companies with only one or two directors.

“If the intention is to help keep businesses afloat during the lockdown, directors must be able to continue working while furloughed, to try and get their company off life support. This would be no different from the rules for the self-employed. On an even more basic level, it’s unworkable for a company to have no one at the wheel in any respect whatsoever.

“So far, directors of small companies have largely been caught between two stools, and they need support. They don’t fit easily into the support schemes that have established for employees and the self-employed, and it’s past time government woke up to the problem.”

Yesterday’s direction to HMRC, the IoD said, stated that furloughed directors may only file company accounts or carry out disclosure exercises.

However, HMRC’s guidance online stated (under Company Directors) that furloughed directors may “carry out particular duties related to fulfil their statutory duties”, provided they do no more that “would reasonably be judged necessary”. Given that directors’ statutory obligations include broad duties such as “promoting the success of the company”, HMRC’s guidance, said the IoD, provided some leeway.

However, the guidance also states: “They should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provide services to or on behalf of their company.”

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The new instructions, claimed the IoD were “highly restrictive”, and could prevent directors undertaking  tasks such as paying suppliers or administering the furloughing of other employees.

The IoD has asked the government to amend the job retention scheme to allow directors of small companies to continue working to promote the success of their company even while furloughed. This, it stated, “would help government in its intended policy objective of helping businesses survive during the coronavirus outbreak”.