Insights

HMRC has clarified its guidance on who is eligible to defer tax payments due on 31 July.

All taxpayers who are due to make self-assessment tax payments on 31 July can now delay their payment due to the disruption caused by Coronavirus. This includes self-employed taxpayers and also company directors who pay self-assessment tax on dividend income.

It is these directors of limited companies, who typically pay themselves a small salary and regular dividends, that are currently the ‘losers’ when it comes to accessing the different relief packages offered by the Government as a result of COVID-19.

As employees, they are technically eligible for the Coronavirus Job Retention Scheme which will enable them to claim a grant up to 31 May 2020. However, the scheme rules do not cover dividend income and they also prohibit an employee from working in their company at all when claiming the grant, therefore they have the choice of either stopping their business activities completely and receiving a potentially small grant payment, or continuing to work as normal. Given that many will have suffered a significant loss of demand for their services but will wish to keep their business active wherever possible, the potential to defer tax payments may be the most welcome incentive available to them.

Any directors intending that the company should furlough them under the current scheme should note:

• Whilst you can receive the lower of up to 80% of your previous gross monthly salary or £2,500, this will not include amounts paid to you as dividends. Read our other article explaining how this is calculated: COVID-19: The Furlough Scheme Summarised
• You will be able to continue to carry out your directors’ duties such as filing statutory forms, and ensuring you meet those duties, you will not be able to carry out any of your employee duties such as communicating with customers or suppliers or dealing with staff issues;
• It is difficult to furlough every single employee in a company unless that company is effectively ‘mothballed’.

If you have concerns about your position as a company director/ shareholder, please contact us via partners@rjp.co.uk.