How the furlough scheme works for office holders and LLP members
- AuthorTracey Dickens
On 4 April 2020, the government updated its guidance for employers in relation to the Coronavirus Job Retention Scheme, which enables employers to claim for employee wages, up to specified limits. The updated guidance addresses office holders, company directors and Limited Liability Partnership (LLP) members, amongst others.
Office holders paid through PAYE can be furloughed and receive support through the scheme. The furlough, and any ongoing payment during furlough, will need to be agreed between the office holder and the business that operates PAYE on the income the office holder receives for holding their office. Where the office holder is a company director or member of a LLP, the furlough arrangements should be adopted formally as a decision of the company or LLP.
Salaried company directors are eligible to be furloughed and receive support through the scheme. Company directors owe duties to their company which are set out in the Companies Act 2006.
A company may (acting through its board of directors) decide that all or some of its directors should be furloughed, provided that in making such a decision the board complies with its statutory duties. Any decision to furlough directors should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned.
Being furloughed will not prevent the directors carrying out particular duties to fulfil their statutory obligations owed to the company. They may continue to fulfil such duties provided they do no more than would reasonably be judged necessary for that purpose. For instance, they should not do work of a kind that they would carry out in normal circumstances to generate commercial revenue or provide services to or on behalf of their company.
This also applies to salaried individuals who are directors of their own personal service company (PSC).
Salaried members of Limited Liability Partnerships (LLPs)
Members of LLPs who are designated as employees for tax purposes (‘salaried members’) under the Income Tax (Trading and Other Income) Act (ITTOIA) 2005 are eligible to be furloughed and receive support through the scheme.
The rights and duties of a member of a LLP may be set out in a LLP agreement or, in the absence of an agreement, default provisions in the LLP Act 2000 will apply.
To furlough a member, the terms of the LLP agreement (or any such agreement between the LLP and the member) may need to be varied by a formal decision of the LLP, for example to reflect the fact that the member will perform no work in the LLP for the period of furlough, and the effect of this on their remuneration from the LLP.
For a LLP member who is treated as being employed by the LLP (in accordance with s863A of ITTOIA 2005), the reference salary for this scheme is the LLP member’s profit allocation, excluding any amounts which are determined by the LLP member’s performance, or the overall performance of the LLP.
If you require any assistance in relation to formally recording decisions of the company or a LLP please contact Tracey Dickens on 01206 217326 or firstname.lastname@example.org.