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Furloughing a Company Director and performing statutory duties

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Understanding the duties of a furloughed company director during Covid-19

What business activity can a limited company director engage in while on furlough and what activities are prohibited? Company directors were granted furlough during the coronavirus pandemic and restricted to statutory duties only while on temporary leave. Here’s what a company director can and can’t do while on furlough.

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What can a company director do when furloughed?

HMRC have confirmed that limited company directors can be furloughed as they are a company employee on PAYE. By taking the approach to furlough staff, you can retain employees by giving them a temporary leave of absence until the economic climate improves following COVID-19. The Coronavirus Job Retention Scheme (CJRS), better known as the furlough scheme, has been extended until the end of September 2021. 

While on furlough leave, the company director can perform statutory duties to maintain the daily upkeep of the business, including legal filings and record keeping. This includes the likes of preparing VAT returns, preparing annual accounts and updating general records.

The company director can be furloughed if they are not actively providing services to the company or generating revenue. You are unable to carry out any work which requires invoicing clients or suppliers. This is due to difficulties created for HMRC in distinguishing between dividends from the business and external sources of income, such as income from shares.

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Protecting the workforce with temporary leave

A business may decide to furlough staff to protect their livelihoods, rather than cutting the cord and permanently terminating their contracts. By waiting out the storm and revisiting active employment activity at a later date, staff members can remain on the payroll and continue to be bound by the benefits offered in their employment contract.

As the government work intensely to slow down the spread of the virus, strict social distancing measures have been enforced to restrict non-essential contact. Employees and workers have been instructed to work from home if reasonably possible, cutting down the mixing of social groups and unnecessary contact with others.

As these changes shift the dynamics of working life for employees across the country and businesses begin to buckle under the weight of tight cash flow and a drastic drop in sales, cutting down costs is the next step businesses are forced to take. This is when furlough leave gives businesses a realistic pathway to directly cut costs temporarily which would otherwise sink the business. This move gives the business some breathing space and releases funds to maintain business lifeline. As more businesses enforce furlough onto its workforce, the pressure is relieved regardless of the bittersweet taste it leaves for the decision-maker.  The process is intended to give businesses an emergency route to take before taking serious action such as insolvency damage control.

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