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Sole Director and Furlough 2 contracts?

Sole Director and Furlough 2 contracts?

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The Ross Martin website quite rightly says that a sole director shareholder should have a written service contract and, if they are looking to furlough, there will need to be a service contract for the statutory duties work and also an employment contract to support the furlough claim.

Whilst this may be technically correct I can't see this happening - I hope that this is covered by the Governments reference to the 'spirit' of what they are saying rather than the technical accuracy.

Is anyone putting such things in place?

Replies (21)

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RLI
By lionofludesch
02nd Apr 2020 15:17

I won't be doing this. I'm not a solicitor and it would be illegal for me to start drawing up contracts.

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Replying to lionofludesch:
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By unearned luck
02nd Apr 2020 17:24

In England, at least, I don't think that it is illegal for a non-solicitor to draw up simple contracts.

Simple = not under seal.

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Lone Wolf
By Lone_Wolf
02nd Apr 2020 16:24

Surely no service contract is required for the statutory duties, given that they arise under law as soon as you accept a directorship. It's not as if you can shirk those duties by not including them in a service contract.

I can see the logic of having to have a separate employment contract to support the furlough claim, with the remuneration they have earned being derived from those duties, rather than the directorship. Would that not then open up potential NMW issues?

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blue sheep
By Nigel Henshaw
02nd Apr 2020 16:31

no

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By paul.benny
02nd Apr 2020 16:49

Round Objects (referring to the guidance quoted by the OP)

It is undoubtedly good practice to have a written statement of terms and conditions of employment, and employees have a entitlement to receive one.

However, a statement that a furlough claim requires there to be a written employment contract is purely speculative and indeed somewhat alarmist. The guidance so far issued is silent on the matter but there is no reason to believe that an additional hurdle will be put in place for directors.

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Replying to paul.benny:
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By unearned luck
02nd Apr 2020 17:43

I agree.

The tax fac say "After examining HMRC guidance ICAEW believes that individuals who are directors of their own family companies and who are themselves paid via PAYE should be eligible for the coronavirus job retention scheme, although the same rules will apply as to other businesses and their employees."

The "same rules" include the one about doing no work. Subject to there being a disregarded in the rules when they are made for some work ("statutory duties" has been mentioned), it will be impossible for a sole director to furlough. For example making the claim for the JRS is work.

In normal times, at least, a service contract will give most directors paid at the primary threshold national minimum wages problems for their companies. It is the lack of a written contract (in the view of the Dept of Trade and Industry in 2000 when the NMW was introduced) that takes directors outside of the NMW regime.

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Replying to unearned luck:
RLI
By lionofludesch
02nd Apr 2020 17:54

unearned luck wrote:

The "same rules" include the one about doing no work. Subject to there being a disregarded in the rules when they are made for some work ("statutory duties" has been mentioned), it will be impossible for a sole director to furlough. For example making the claim for the JRS is work.

What do you understand by the term "statutory duties" ?

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Replying to lionofludesch:
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By unearned luck
02nd Apr 2020 18:40

Duties that directors cannot lawfully delegate to non-directors.

For example an accounts clerk (working for the company or the company's accountants) can prepare the company's CT return and press the submit button (now that returns can't be signed) and therefore these things are not statutory duties. However, the approval of the return before and for submission is a statutory duty.

Questions: Does "statutory duties" mean things imposed on directors by the Companies Act only or by any and all statutes? And why only statutory duties -why exclude duties imposed by the common law from disregard?

Of course we need to wait for the (draft) law to know what the government means by the term - if the term appears in the law.

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Replying to unearned luck:
RLI
By lionofludesch
02nd Apr 2020 18:47

unearned luck wrote:

Duties that directors cannot lawfully delegate to non-directors.

Far too narrow, imho.

Read CA2006, s172 and see if you change your mind.

There was a lass on here last week asking about a farmer. Is feeding his animals a statutory duty ? I say yes because it's protecting the company's assets. That's before we consider any animal welfare legislation.

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Replying to lionofludesch:
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By unearned luck
02nd Apr 2020 23:06

In that case if the farmer normally employed a stockman to feed the company's animals he can furlough the stockman and still have the stockman feed the animals simply by appointing the stockman a director.

I've read s172 and I still don't see it as a statutory duty for a director to get his hands dirty by feeding animals. The requirement to protect the company's assets does not mean that directors must don security guard uniforms and patrol the grounds of the company's premises. A company director does not need to understand bookkeeping to fulfil the duty to keep proper books and records, let alone make any entries therein. All these things can be, and often are, delegated.

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Replying to unearned luck:
RLI
By lionofludesch
02nd Apr 2020 23:17

I don't follow your logic but you must advise your client based on whatever interpretation you place on the term "statutory duties".

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Replying to lionofludesch:
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By unearned luck
06th Apr 2020 01:57

Indeed.

The adviser can only try his or her best navigate a course between the Scylla of advising claiming the grant with the risk of HMRC recouping it with interest and penalties or the Charybdis of advising not making the claim that transpires to be properly due when it is too late to make a belated claim.

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Replying to unearned luck:
RLI
By lionofludesch
06th Apr 2020 10:45

unearned luck wrote:

Indeed.

The adviser can only try his or her best navigate a course between the Scylla of advising claiming the grant with the risk of HMRC recouping it with interest and penalties or the Charybdis of advising not making the claim that transpires to be properly due when it is too late to make a belated claim.

If you're still toey about it, why not get the company to appoint a new director - mum/dad/offspring/blokedownthepub/dog - who can sign off the payroll, he's not due any furlough pay anyway and everyone's happy?

Mountains and molehills spring to mind.

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Replying to unearned luck:
RLI
By lionofludesch
02nd Apr 2020 23:19

.

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Replying to unearned luck:
RLI
By lionofludesch
02nd Apr 2020 23:19

.

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Replying to unearned luck:
RLI
By lionofludesch
02nd Apr 2020 23:19

.

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Replying to unearned luck:
RLI
By lionofludesch
02nd Apr 2020 23:18

.

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By ireallyshouldknowthisbut
02nd Apr 2020 18:37

Until we know how big the head of the pin is, we are not going to know which clients can balance on it.

Too many unknowns to be sure. My concern quite frankly is if directors DO get a bail out, then next thing we know all co. directors have to pay a market rate of salary for their work. Rishi has already effectively told the self employed to expect a big increase in Class 4 NI.

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By jantill
02nd Apr 2020 19:58

Surely any written contract, if needed, can be compliant with NMW and NI Primary Threshold by stating the working hours as, say, 10 per week. If unpaid, voluntary, overtime is worked that is the business of the employee.

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By CWservices6064
02nd Apr 2020 20:34

a simple solution could be to allow furloughed directors to work........perhaps on plans for future business survival.......

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Replying to CWservices6064:
RLI
By lionofludesch
02nd Apr 2020 20:48

Too obvious for HMG.

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