Stewart Associates (Shrewsbury) Ltd
Emstrey House (North), Shrewsbury Business Park, Shrewsbury, Shropshire, SY2 6LG.

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14 May 2020

What can a Furloughed Director do?

As commercial activity is starting to pick up and people are considering if they should unfurlough a useful reminder (largely cribbed from an accountancy periodical)

A furloughed employee must not provide services to, or carry out any income-generating work for their employer. Only non-income generating activities such as training or union work is permitted. Similarly, a furloughed director should not do any work which generates a commercial revenue or provides services to their company.

This condition may be awkward for some directors who were intending to continue some work in order to keep their business going, albeit in a significantly reduced form. A furloughed director who had been planning to use their furlough time to keep the business 'ticking over' or look for new work, issue or agree quotes, or advertise business services should exercise extreme caution. HMRC guidance clearly states that directors should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.

But nor can the sole director of a company furlough themselves and down tools completely. All companies have ongoing statutory obligations with which they must comply. Fortunately, directors will be allowed to carry out the statutory obligations they owe to their company while still furloughed although we have only limited guidance at present as to exactly what that might comprise. The guidance at May 1 states that directors should do no more than would reasonably be judged necessary for that purpose.

The Companies Act 2006 helpfully sets out a number of directors' duties, including (but not limited to):

A duty to promote the success of the company
A duty to exercise independent judgment
A duty to exercise reasonable care, skill and diligence

Of these, the duty to promote the success of the company is likely to be the most relevant here. The Companies Act expands on this duty, setting out that the director must 'promote the success of the company' and have regard to matters including:

The likely consequences of any decision in the long term.
The interests of the company's employees.
The need to foster the company's business relationships with suppliers, customers and others.
The desirability of the company maintaining a reputation for high standards of business conduct.

Until HMRC issues more detailed guidance on what they consider furloughed directors are permitted to do, and based on the above, it would appear reasonable to presume that a furloughed director should still ensure that company accounts are filed on time, tax matters are dealt with in a timely manner, payroll run, and that employees, suppliers and customers are informed about the company's current plans and state of operations. There could, however, be a thin line between the permissible and the forbidden. The massive cost to the Exchequer of CJRS means that claims will have to be scrutinised by HMRC at a later date. Keeping a diary note of what duties were undertaken during furlough could be prudent.

By way of further reminder: The process of furlough

Where the shareholder-director takes the decision to furlough themselves under the scheme, there are some necessary formalities. In addition to confirming the decision in writing to the director (who may need to write to themselves), any decision to furlough should be formally adopted as a decision of the company and noted in the company records.

 

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