Furloughing Directors – the problems

27th March 2020

The guidance is unclear at the moment if you can furlough directors. Some people say yes, some say no.


We thought we would explain a little about the problems of this and set out why we think furloughing a director is unlikely to be possible.


Problem 1:  Directors duties in relation to the company are continuous, if the company has no one responsible for it then it cannot continue in existence.


Problem 2: Directors are not “employees” in that  there is no contract of employment.  Only employees can be furloughed. Although the payment to a director is processed through PAYE like an employee and is classed as employment income on your tax return, it is actually a compensation payment for holding the position of director not a payment for hours worked.


Problem 3: If a director wants to be an employee then they must be paid minimum wage and have workplace pensions deducted.  Those on a low salary therefore would not have been paid minimum wage and you have the potential of an HMRC investigation for failure to pay minimum wage and make workplace pension deductions.


Problem 4: To be furloughed you must stop all work in relation to the company, that means no sending work emails to anyone (even us), no phone calls (so you may miss out on further work), no paying wages, using the bank account to make payments, nothing at all.  For almost all directors that’s just not possible.


As you can see the whole situation is not as clear cut as it appears, there are significant barriers in the way of being legally able to furlough a director.