Member Blog

Facing the challenges and causes of climate change and reducing energy emissions have become a major concern for both businesses and governments. And, while approaches such as electric cars and the UK’s Clean Growth Strategy are a step in the right direction, much remains to be done. Many private organisations are trying to reduce greenhouse gas emissions, while others are trying to reduce their fuel consumption to help meet their target. Whatever the reason for their efforts, much of the solution lies in cutting back on excess waste in today’s complex supply chains.

Businesses need to be aware that sustainability is not just a concern for businesses and regulators. Consumers are also becoming more environmentally conscious, so companies trying to reduce their carbon footprint are in a position to benefit from higher sales and increased customer loyalty.

The transition to an environmentally friendly business model means tackling the increase in unnecessary waste in the supply chain. According to experts, overproduction and over-purchase of materials can account for five to eight percent of all waste. Poor inventory management and unnecessary transport of goods are also major waste in the supply chain. Any activity that results in pointless stock movements will increase the carbon footprint of the supply chain without good reason.

How ERP Software Helps

Business management solutions, such as enterprise resource planning (ERP) or material requirements planning (MRP), create seamless communication between sales, planning, inventory, store floor, procurement, administration, and finance. ERP software solutions provide instant updates and analytics, which in turn increases efficiency and transparency throughout the supply chain.

How is it good for the environment? Management systems, such as ERP or MRP, synchronise supply with demand while monitoring losses and waste. Companies can now think about relocating production, packaging and possibly other operations to bring production closer to customers.

Millions of companies have already turned to ERP software to make their processes more efficient and profitable. These companies also understand that the same functions that increase their results also help them achieve environmental goals, such as reducing CO2 emissions and reduce waste.

Reduce Fuel Consumption and CO2 Emissions

Fuel efficiency starts with forecasting and planning tools that help companies optimise full container transport. Without these management tools, the cost of shipping partially filled containers and wasted fuel will pay for the organisation and the environment. On the other hand, advanced demand planning that includes real-time visibility saves money and reduces emissions.

Fuel-saving strategies are also based on smart route management when delivering products. ERP software helps companies develop efficient route schedules to achieve optimal fuel economy, better driver efficiency and less damage to the environment.

Manufacturing software (eg ERP or MRP) makes it possible to anticipate requirements and deliver the right goods in the right quantities to the right place more efficiently. The main goal is to minimise deficiencies and reduce the costs of ordering, transporting and storing goods, thus saving fuel and reducing emissions.

Going Paperless

Reducing a company’s dependence on paper is good for the environment. Paper-based organisations are less efficient, more prone to error, and have a slow decision-making cycle. ERP software minimises typical paper paths and increases functional visibility, resulting in improved decision-making at every level of the organisation.

ERP solutions no longer require the use of paper for sales orders, purchase orders, packing slips, invoices, reports, shipping and confirmation messages, and many other documents. Switching to a paperless business saves your business money and is a green solution. It is more efficient and increases the number of people who have access to the information they need with just a click of the mouse.

MRP software enables your business to integrate data across the organisation by creating detailed, paperless reports for advanced business information and decision making. ERP solutions provide businesses with easy-to-use tools and database mining capabilities to generate, store, and retrieve information as needed. Printing and storing paper reports is a thing of the past, as is the large carbon footprint they help create.

Minimising Returns and Charge-Backs

Retailer compliance issues can be painful for both your business and the environment. Although these charge-backs can significantly drain profits, they also leave a large carbon footprint due to the return and re-shipment of the product. Manufacturing ERP software helps you solve these complex retail problems by enabling refund collection, validation, contesting, and recovery.

Production Software Helps the Environment and your Business

Cutting-edge MRP or ERP solutions are green because they improve business processes from sales to shipment. In the meantime, they help burn less fuel and remove most of the paper you once needed for everything from slipping to bills. By investing in a high-quality ERP system, you can optimise your approach to energy efficiency while facilitating the transition to technology that helps you change the way you communicate with the environment, save money and raise your brand image – all at the same time!

For more information about this topic, please see: MRP vs. ERP: Which Solution is Right for You?

The UK boasts one of the highest internet penetrations with almost everyone now online. Recent data shows 91% of adults in the UK have used the internet. By 2021, about 93% of UK internet users will have shopped online. 

Advances in technology, including augmented and virtual reality (AR/VR), artificial intelligence (AI), 5G connectivity and blockchain have started the 4th industrial revolution in the country. If you are an aspiring entrepreneur in the country, this is a great time to ramp up your investments.

The internet offers diverse opportunities for daring investors. Some of the biggest successful startups in the country have leveraged the latest technology to thrive. They include Streetbees, Revolut, Igloo, Trouva, Soldo, Elder, Guestready and Echo to mention a few.

This guide examines some business ideas that the internet has turned into successful businesses. It is a good place to seek inspiration for your startup.

Start a Blog

Blogs are all over and while this might not look like a great way to make money, you should not ignore it. Most people approach blogging with the wrong attitude and this inevitably leads to failure. You have to blog about something you know and are passionate about. More importantly, you have to add value to the lives of your target readers. This is the only way to boost traffic levels before you start monetising. One of the most lucrative blogging niches today is eSports. There’s an upsurge of eSports in terms of viewership and revenue. In 2018, eSports industry boasted over 165 million enthusiasts. This is in addition to over 215 million viewers who tuned in occasionally. If you started a blog on eSports, you have a rich market across the globe yearning for news, tips, results, live updates and much more. People will search and find your eSports betting site whenever they need tips.

Ecommerce Store

UK residents love shopping and this is evident from the success of most online stores. From fashion, food, jewellery to book and many other items, there’s no shortage of stuff you can sell on your online platform.

An eCommerce store is one of the most common ideas and with proper market research, it can easily pick up. You should offer value to your target customers to start out in the crowded market.

Software Development

Do you have a knack for coding, programming and everything to do with computers? If so, you should think of developing software to solve everyday problems.

Modern society has turned to technology for virtually everything from wellbeing, shopping to stock trading. With a well-designed mobile app or software, you can join the league of some of the most successful startups.

Stock Trading and Forex

You have most likely come across people promoting forex trading and many applications for doing so. Before you dismiss this as another online scam, take to understand how forex works, the legality of the trade in the UK, regulations, among other things. Find someone to train you and start with free trials if you wish to use trading applications.

Affiliate Marketing

Affiliate marketing is an ideal way to make money. As an affiliate, you’ll receive a commission for enabling a sale though you won’t promote products directly. You can sign up with an affiliate company and then advertise their products on your website or blog.

If anyone uses your link to go to the company’s website and makes a purchase, you get a commission. The startup costs are negligible, and as long as you have a great platform, you can rake in good money.

Final Thoughts

Thinking of setting up an online business in the UK? The market is vast and there’s a lot of potential across industries. Do your research and always start a business in a sector you love.

Thursday, 16 April 2020

When someone dies, their estate will still be liable for income tax and capital gains tax during the estate ‘administration period.’ This is the period during which the personal representatives apply for probate, collect in the deceased’s assets and pay their liabilities.

Estates are divided into two categories: complex estates and non-complex estates.

What are complex and non-complex estates?

Complex estates are where:

• The value of the estate exceeds £2.5 million
• Tax due (i.e. income tax and capital gains tax) for the whole of the administration period exceeds £10,000
• The proceeds of assets sold in any one tax year exceeds £500,000 (for deaths after 5 April 2016)

Non-complex estates are where none of the above criteria are met.

If the estate falls into the complex category, self-assessment tax returns will be required annually by 31 January each year in line with the usual self-assessment deadlines.

Informal payment arrangements

The personal representatives (PRs) of non-complex estates do not need to file formal tax returns. Informal payment arrangements can be used. The PRs simply provide HMRC a calculation of the amount of tax due at the end of the administration period and HMRC will issue a payment slip and reference number, which is to be used to make a one-off payment of the total tax due.

Need help?

If you need professional advice or assistance on probate or post-death tax matters, please speak to Ian Webster or Cindy Chaplin or or email [email protected]. You can find contact details on the Our People section of the MHA Larking Gowen website.

We are accredited by the Institute of Chartered Accountants in England & Wales to provide probate services.

Ian Webster

Tuesday, 14 April 2020

This is widely regarded as a Chinese saying: “May he live in interesting times.” Well we certainly are doing that during this COVID-19 crisis. Business viability may seem secondary to keeping all your team fit and well, but really must operate in tandem.

Showing my age, I yearn for a reprint of a Law Society pamphlet called “The Expense of Time.” The basic format of salaries, direct costs, indirect costs and profit is a great financial model for a solicitors practice. However, if this is set up in a spreadsheet, you can perform simple variance calculations that enable you to see where profit and cash flow pinch points occur as you change the assumptions.

This is a vital exercise for legal firms as cash flow should hold up in the short term if you defer paying your VAT or income tax (in accordance with the government scheme), but you need to know what sort of problem this may store up for the future and how long you may need to take any loans out for. We know the banks have made loans available to professional firms already, but you still need a good business case that demonstrates how you can afford to repay it.

This can then help determine the number of people you may need to furlough, place on reduced hours or indeed make redundant. We all work hard to build our teams so we want to try to avoid big life-changing decisions (as far as possible), for what we all hope will be a short-term blip.

In looking at the short-term future, we’re all in the dark about the demand for our services, but carrying out a cash flow forecast by income stream will enable you to react as the situation changes, which is the one certain thing to happen. This should help you to work out the critical decisions, and it’s always better to sort finance out in advance than wait for it to become a crisis. This doesn’t need to be a big document, but something you will refer to and update.

Of course, we’re happy to guide you through the cash flow process and offer any support you need. Call 0330 024 0888 or email [email protected]. You can also find contact details on the Our People section of our website.

Jon Woolston

B2B Cashflow Solutions’ role in the business community is to source and structure funding to help businesses with working capital and growth, however, since COVID-19, available resource has been re-focused on helping businesses to re-negotiate existing debt profiles with banks and commercial lenders, including restructuring, repayment ‘holidays’ and re-financing to consolidate.

Simon Reynolds, Director, explained; ‘We believe we have a duty of care as a leading independent finance intermediary to engage with the government, national platforms which provide a collective voice, and local authorities to ensure we are fully informed and able to challenge on behalf of SME’s, many of which are under significant stress.

During this process we have experienced a variety of feedback from those delivering the government’s messages, and those desperate for help.’

Focusing on his first of two key areas of concern, Simon commented; ‘The government has rightly recognised employees and the self-employed, but has so far failed to recognise the owners of around two million ‘limited company’ SME businesses which, on advice from their accountants, are modelled on owners deriving personal income through declaring dividends on the profits they and their businesses work hard to achieve.’

Sole-traders and partnerships (self-employed) are being afforded support by way of an average of their last three years’ (as applicable) annual HMRC self-assessments, therefore the amount self-employed individuals paid themselves from the profits of their business will determine the level of taxable grants they receive (restrictions apply).

This group accounts for around 4 million businesses in the UK.

SME limited companies represent an estimated further two million businesses in the UK, and yet so far the owners of these businesses have been overlooked despite these business owners relying on profits to remunerate themselves in a similar way to the self-employed (albeit via the declaration of dividends).

Whether self-employed, or a business owner by way of company shareholding, these individuals take substantially all the risks to establish, build, finance, and manage their business. They also create significant employment along the way.

The government has rightly taken substantial measures to protect the employees of businesses across the UK, but without help for business owners of SME limited companies, there remains a real risk that an element of this investment will ultimately prove futile if employees are forced to apply for Job Seeker’s Allowance alongside their employers.

Progressing to his second key area of concern, Simon shared data published by UK Finance (the collective voice for the banking and finance industry) in regard to the new ‘Coronavirus Business Interruption Loan Scheme’ (CBILS), which states that CBILS is struggling to have the desired impact.

With just 2,022 loans (totalling £291.9m) having been drawn at time of publication despite just over 300,000 applications having been made so far, a paltry 0.65% of applications have resulted in a CBI loan.

Simon commented; ‘The speed at which these loans re being processed will be a major working capital issue to many businesses trying to survive with little or no income. I am also concerned that many of these applications have not progressed because loans under the scheme have been declined by the scheme lenders’.

While the statistics would appear to support Simon’s concerns, he added; ‘We are aware of this because of the feedback we receive from our Relationship Manager colleagues within the banks who contact us for assistance on behalf of customers they have declined under the scheme, and directly by businesses seeking alternative help having been declined under the scheme.’

In summary, Simon added; ‘It is feasible that delivery of taxable government subsidies to business owners of limited companies to bring them into line with employees and the self-employed would help them preserve cash reserves for longer, and therefore offer a better chance for their business to survive.

‘It may also relieve the strain on the banks and other scheme lenders in what is proving a difficult, and arguably ineffectual CBILS process, which it is clear needs urgent improvement to optimise the number of businesses which may benefit before it is too late for them.

‘My concern is that with so many businesses not generating sufficient income (If any) under circumstances with an unknown timeline, business owners may be tempted to apply for this additional funding simply to pay existing creditors, or to draw personal funds via Directors’ Loans.

Assuming it is unlikely that this additional debt will prove a positive impact on the ability for businesses to generate profits, I foresee a potential debt repayment ‘time-bomb’ for many businesses and their owners.’

If you would like to add your voice to the Coronavirus Support Package for Directors / Shareholders of small Limited Companies to provide a COVID-19 support package in line with that offered to the employed and self-employed, please follow the link: https://petition.parliament.uk/petitions/310515

Wednesday, 08 April 2020

Government guidance was updated on 4 March to confirm that if you’re the director of your own company, you may benefit from the JRS in relation to salary, which is paid to you through PAYE. It remains however, that many such directors will often pay themselves comparatively little, preferring instead to withdraw profits via dividends, which can restrict its value for many. 

That aside, one other concern had been the requirement, as for any employee, that a director should, in consequence of being furloughed, no longer perform any duties for the company. How then, would this fit with the ongoing duties that a director owes to their company under the Companies Act and otherwise? 

HMRC have resolved this by stating, where directors still need to carry out particular duties to fulfil their statutory obligations, they can do so provided that they do no more than is deemed reasonably necessary for those purposes and they are no longer carrying out what is essentially their day job i.e., generating commercial revenue and undertaking services to or on behalf of the company. 

In order then to furlough a director, it will be necessary for the company (acting through its board of directors), and where it’s in compliance with the statutory duties of one or more of its salaried directors, to formally adopt this as a decision by the company, note it in the company records and communicate it in writing to the director(s) concerned. 

We consider that this decision should further make clear that the director is being furloughed in respect of their ongoing role as a director (rather than making reference to a separate employment, which may have further employment law implications), subject only to their being required to fulfil such statutory obligations as they owe to the company in the interim. 

Finally, recognising that some company directors may be paid only once a year in satisfaction of their annual salary, it would appear that such an amount as was paid to them in the 2019/20 tax year will form the basis for calculating their average monthly earnings, on which any Job Retention Scheme reimbursement may now be based. In that event, it will be necessary for them to make sure that they are at least paid an equal monthly amount against which a claim for reimbursement can be made. 

The above reflects our opinion based on information currently available and it should be recognised that HMRC have stated their right to retrospectively audit all aspects of a claim. As guidance continues to evolve, we further recommend checking for any updates when implementing any arrangements. 

For more information please get in touch with your usual MHA Larking Gowen contact or call 0330 024 0888 or email [email protected]. 

You can find contact details on the Our People section of the MHA Larking Gowen website. 

John Weston 

The UK gambling industry is worth £14.4 billion per year. As more igaming companies seek to establish themselves in the market, the Gambling Commission has recently introduced a series of new rules and regulations that are designed to protect the players. In this article, we will look at some of the recent regulations and the future of the UK online gambling industry.

Stricter rules and regulations

The UK Gambling Commission (UKGC) is the authority that is responsible for the regulation of gambling in Great Britain. Established in 2005, the commission introduces new regulations and grants gambling licenses to companies that seek to offer their online gambling services in the UK. To receive and retain a license, betting companies need to follow the commission’s high standards and requirements. Failure to uphold these rules could result in significant fines or losing the license.

In the last few years, the UKGC has introduced several regulations to create a safer gambling environment for players. In 2019, the commission implemented stricter age verification. This means that online casinos are now required to verify their players before they are allowed to deposit and play, even in free mode. Furthermore, a credit card ban was introduced earlier this year. It is estimated that more than 800,000 players use their credit cards to deposit and gamble, and this ban will protect players who are at risk of developing gambling problems.

Future of the industry

There is no doubt that the UK Gambling Commission will put forward other regulations in the coming years. Some believe it will introduce a maximum betting limit on online casino games, such as the £2 limit that is currently in place on FOBTs. The commission has already put a ban on “feature buys”, which are slot machines where players can stake extra money to buy a bonus feature. However, a maximum betting limit has not yet been announced.

There are hundreds of licensed online casinos in the UK. And while the majority of them have no difficulty in implementing the UKGC’s new regulations, several companies are opting to withdraw from the UK market entirely. Several operators have received hefty fines for not following the Gambling Commission’s general rules in the past, and some companies may not be willing to take the risk that comes with operating a casino in the UK market. Furthermore, fewer companies may attempt to establish themselves in the market going forward. However, despite new regulations and stricter rules, the well-established igaming companies will still have good results in the coming years.

When the Government recently introduced the Coronavirus Business Interruption Loan Scheme (or CBILS) offering to guarantee 80% of loans made by banks, we hoped that this would make a real difference for desperate businesses looking to survive through this crisis. Although not a perfect solution, after all these loans will need to be repaid, they offer zero fees and the Government pays the first 12 months of interest, so they looked like a much-needed financial lifeline.

In practice, businesses have struggled to secure loans from CBILS, with only £90 million lent so far. The Treasury has reported that, out of 130,000 applications, only 1,000 have been granted. Certainly, the experience shared by my MHA Corporate Finance peers, in a conference call late last week, mirrored this frustration across the UK. In fairness to the banks, their credit teams are no doubt inundated with applications and their people are suffering from the effects of COVID-19 just like the rest of us. Nothing is easy in these unprecedented times.

The Government has stepped in and introduced some welcome changes  to help drive up the scheme usage.

The key changes:

• Previously businesses needed to have been turned down for commercial lending before they would qualify for CBILS. This led to some opportunistic lenders offering ‘commercial’ loans with extortionate fees and interest charges. So, this requirement has now been withdrawn
• For CBILS loans of up to £250,000 banks will now be prevented from asking business owners to provide any personal security. For loans of more than £250,000 banks may ask for personal guarantees, but it must exclude their home and must be limited to 20% of the balance after business assets have been used as security
• Previously the scheme was only available for businesses with turnover of up to £45 million. This has been extended now, and businesses with turnover of £45 million to £500 million are able to borrow up to £25 million. Further details of this scheme are expected to be released shortly

We hope that these refinements will make a meaningful impact on the usage of CBILS, but note that the banks, quite understandably, will still want to see all the information they ordinarily need to assess a loan application. The extent of this will depend on the size of the loan but, according to the British Business Bank, these requirements are likely to include:

• Management accounts
• Cashflow forecasts
• Business plan
• Historic accounts
• Details of assets

As part of the CBILS application process, the banks will need to establish the viability of each business by reviewing two key areas:

1. Was the business viable before COVID-19? This is a review of historic accounts and management information
2. Will the business survive in the short to medium term with the CBILS funding in place? This will involve cashflow forecasting multiple scenarios, along with supporting written assumptions, and possibly a business plan to back it up

If you need any help with any of the above, particularly the preparation of cash flows and accounting information, please don’t hesitate to get in touch with your usual MHA Larking-Gowen contact or send an email to [email protected].

You can find contact details are on the Our People section of our website.

James Lay

My experience of working with business owners and directors over the years (in good times as well as bad) has proved that a calm, well-structured approach to cash flow management has always provided the best chance of a successful outcome.

The process will help identify urgent short-term measures as well as enabling planning for the medium to long term security of the business. I see cash flow management as a tool to help you control your responses to current circumstances and an opportunity to review your business in detail to create strategies for the future. Different people will have different personal and business objectives and it’s vital that yours are taken into account in developing your response to the current situation.

Here are some straightforward things you should be looking at if you wish to continue to trade.

Have a plan and monitor progress

Create/update cash flow projections; these will be a critical tool

You may wish to prepare cash flows under different “what if” scenarios to help you plan

Many businesses will need to convert traditional monthly projections to a weekly or even daily basis

Focus on the cash-to-cash conversion cycle and reduction of working capital requirements

Ensure your financial records and reports are kept up to date so that you monitor profitability, overheads, stock levels, and debtors and creditors balances on a timely basis

Generate cash

• Government help: Take advantage of the business support offered by the Government. We’ve produced a summary of the current business support available here
• Trading opportunities: Can you adapt your business model to serve existing or new customers in a different way? We’ve seen some wide thinking initiatives by some of our clients. Consider alternative ways to generate an income stream
• Debtor management/customer relations
• Reduce stock
• Minimise work in progress
• Sell surplus fixed assets
• ‘Sale and lease back’ fixed assets
• Sell investments not held for trading purposes
• Obtain tax refunds/incentives
• Insurance claims

Coming soon

• Look out for our next blog which will cover:
• Saving cash
• Finance options
• Alternatives to trading

Need help?

There are so many things to consider under each of the headings above. In my experience, many clients have found it useful to work through each area with us, receiving the benefit of an ‘outside view’ to stimulate thinking, helping them to develop and implement practical strategies.

We’d be happy to help you in the same way. Please get in touch with me or your usual MHA Larking Gowen contact at [email protected].

You can find contact details on the Our People section of our website.

Lockdown means more time spent in our homes and our gardens, but whatever size garden (or windowbox) you have you can get involved (a great project to do with the children too)!

The Bee Saviour Behaviour card is one of the more original printing projects that we have been involved in. The team behind the project had the noble idea of encouraging people to carry a little card containing sugar syrup to revive exhausted bees. The idea proved popular and a crowdfunding campaign enabled the team to upscale their initial design and increase their production of the insect-reviving cards. 

How It Works

In their industrious search for nectar, bees can fly many miles from their hive. Sometimes a bee will run out of energy and land exhausted on the ground. A small drink of sweet nectar will soon have the bee back in the air, but if there are no flowers around then the exhausted bee may not be able to work up the energy to get back to the hive. 

An insect-loving good Samaritan can give a bee a dose of sugar syrup to set the insect up for the next stage of her journey. Fine if you are at home and the solution can be prepared in a teaspoon, but what if you see a distressed bee when you are out and about? This is where the Bee Saviour Behaviour card comes in. A section of the card can be peeled back to reveal the sugar syrup. Once the bee has been revived and buzzed off, the card can be resealed and popped back in a wallet or handbag.

Printing Expertise

We were contacted to provide the printing services for the latest iteration of the Bee Saviour card. We printed the backing card and two self-adhesive panels which reveal and reseal the card, one of which was foil backed.

Most importantly, we worked alongside the team at Saviour Bees advising on the simplification of the concept and working out a way of embossing the plastic card in the hexagon style. We also recommended a supplier who could produce these, the whole project was very collaborative.

We enjoyed being involved in this unusual project where our printing expertise was used to solve problems and produce an attractive functional item that is now in use internationally. People are sharing their pictures and videos of revived bees on social media under the hashtag #SaviourBees.

Thursday, 02 April 2020

Last week, Rishi Sunak announced that self-employed people in the UK will be able to claim support worth 80% of their average monthly profits, in an “unprecedented” move to cover the impact of Covid-19.

The bailout is broadly the same as that offered to employed workers and led to the Chancellor saying:

“It is now much harder to justify the inconsistent contributions between people of different employment statuses.

“If we all want to benefit equally from state support, we must all pay in equally in future.”

So, what does this mean?

In the press conference that followed, Mr Sunak was quick to deny any imminent changes, although his comment heavily suggests that a tax hike is coming for self-employed individuals. My own inclination would be that national insurance contributions (NIC) will be the focal point.

Here is an example to illustrate why NIC might be targeted.

In 2018/19, a self-employed individual with profits of £50,000 would have paid class 4 national insurance of £3,486. They would also be subject to class 2 national insurance of £153. This gives a total amount collected by the Government of £3,639.

An employee on a salary of £50,000 would have paid class 1 national insurance of £4,628. The employer would also have paid class 1 national insurance of £5,737. This gives a total amount collected by the Government of £10,365.

Mr Sunak refused to go into any more detail, and said,

“It’s just an observation that there’s currently an inconsistency in contributions between self-employed and employed.”

Given the sheer cost of the bailout measures introduced in this last week alone, you would expect the Government to be looking to recoup this expense from somewhere.  

As the Government is trying to reduce borrowing, then attempting to collect more tax seems a plausible way to cover these additional costs.

The previous Chancellor did attempt to increase Class 4 NICs, the main rate paid by self-employed people, to narrow the gap with contributions paid by employees. He quickly did a U-turn on this after facing severe backlash.

Will Mr Sunak attempt the same thing? – It certainly looks that way and, as always, we’ll keep you up to date as and when announcements are made.

Need help?

If you have any questions about national insurance or any other of the Chancellor’s announcements, please don’t hesitate to speak to your usual MHA Larking Gowen contact or email us at [email protected]

You can find contact details on the Our People page of our website. 

Jordan Brown

Monday, 30 March 2020

Government guidance suggests that if you’re the director of your own company you may benefit from the Job Retention Scheme (JRS) in relation to salary which is paid to you through PAYE. However, many such directors will often pay themselves comparatively little, preferring instead to withdraw profits via dividends, which restricts its value.

Nevertheless, in focusing on the salary element of a director’s income, and the ability to claim under the JRS, there are other questions as to entitlement. This is primarily because it’s a condition of the Job Retention Scheme that a director, like any other employee, is ‘furloughed’ such that they no longer perform any duties for the company.

This appears problematic, given the ongoing duties that a director owes to the company under the Companies Act and otherwise. They may, in that role, find that they have to continue undertaking some tasks, even if only administrative.

However, in our view, this should not preclude a JRS claim, to the extent that the salary relates to a genuinely separate employment role. If it does, it may be worth considering furloughing that role and documenting it as such in accordance with guidance. We would, however, counsel that you should also take employment law advice in relation to a director’s written or implied service agreement given the wider implications of its existence, including entitlements to national minimum wage and pensions auto enrolment, and that this could have longer term impact beyond the period of any furlough.

Can you furlough a director for the purposes of the JRS otherwise than when a formal service agreement exists?

HMRC guidance to date doesn’t make the differentiation we have made, therefore it remains to be seen. If a claim is contemplated, it would still be wise to document an agreement between the director and the company for which the director has ceased to perform any duties, and to document that they have been furloughed.

To the extent that the company has more than one director, it’s perhaps also easier to evidence that in furloughing one director that others remain to carry out any ongoing tasks.

Ultimately, however, whether HMRC will accept a claim by a single director or all the directors that they have been effectively furloughed will depend on the detailed rules of the Job Retention Scheme and their interpretation of them, all of which is still evolving.

We recognise that directors who do currently draw a wage from their company, and want to consider a claim under the JRS, may wish to proceed on the basis that they are no longer able to carry out their day-to-day role due to the curtailment of business. If so, we advise that they make full disclosure to HMRC of their circumstances when doing so and bear in mind that HMRC have stated their right to retrospectively audit all aspects of a claim.

The above reflects our opinion based on information currently available. HMRC have, however, said that guidance will be updated as the JRS is further developed, and in line with any further government announcements. To that extent, we recommend that when implementing any arrangements, you check for any updates.

For more information please get in touch with your usual MHA Larking Gowen contact or call 0330 024 0888 or email [email protected].

You can find contact details on the Our People section of the MHA Larking Gowen website.

John Weston