Whilst many Limited company directors eye up the availability of the Job Retention Scheme in order to provide themselves with financial support during the current Covid-19 crisis, sole directors of personal service companies (PSC’s) need to be very aware of the scheme’s requirement for them to “cease all work in relation to their employment” in order to make a valid claim.

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HMRC are expecting the CJRS to be targeted by fraudsters

The job retention scheme, due to come online from April 20^th, will pay 80% of an employee’s salary up to £2,500 a month for up to three months. During a recent Treasury Select Committee meeting, Jim Harra, the chief executive of HM Revenue and Customs, told the committee that he expected the scheme to be targeted by fraudsters, “Any scheme that pays out, I’m afraid attracts criminals that want to defraud it and people that are genuinely entitled to it who inflate their claims.”

Alert to the potential for abuse, HMRC have announced four “lines of defence”. A key safeguard is that any claim made must relate to an employee who was “on payroll” on or before 19 March 2020. The employee must have had a salary declared on an RTI return on or before the same date. Secondly, a grant application will be checked against HMRC held credentials of known employers. These two measures effectively mean that a PSC cannot retrospectively set up a PAYE scheme and back date a payroll in order to claim the grant.

HMRC hope that these background checks will prevent high-risk payments being made before they are checked but they have gone further and are encouraging employees to report their employers if they are being asked to work whilst furloughed. What does this mean for you as a PSC director?

Your duties as a director of your company

To protect your ability to claim the grant you should not carry out work of any kind that in normal circumstances would generate revenue or provide services on behalf of your company. But as the owner-manager of your business you have to be able to ensure the business survives and accordingly you are allowed to continue your statutory duties as a director.

What counts as a statutory duty? This can be quite a grey area. It is fairly obvious that you must be able to ensure that all company statutory records are maintained and filed but where things become unclear is where you seek to maintain customer relationships and where you undertake activities to ensure future work can be secured so that you can return to contracting as soon as possible. For instance, will posting social media posts seeking new contracts mean you cannot claim the job retention grant?

Director’s statutory duties are set out in the Companies Act 2006 and they include the requirement for the director to promote the success of the company which highlights the need to “foster the company’s business relationships with suppliers, customers and others”. So, whilst it would be entirely against the spirit of the scheme to claim and generate income for your company at the same time, it would seem reasonable that you are able to continue to search for new contracts that would allow you to stop claiming the grant; after all the Government wants as many people back in work as soon as possible. The caveat, of course, is to be sure that when you do secure new work you don’t have a period of overlap and that you conclude your furlough period within the rules, submitting a final claim before beginning to generate income for your company.

HMRC will retrospectively audit claims

The final limb of HMRC’s defence against fraudulent claims is their ability to carry out selective checks on individual companies, even after the money has been paid to employers. HMRC reserve the right to audit all claims and to undertake whatever checks they deem necessary in order to establish whether an individual has been “working” and claiming at the same time. Make sure you retain communication between yourself and your end client or agency documenting when you contract was suspended or terminated due to Covid-19, along with your signed agreement to being furloughed. It is important that your email, social media posts and general activities support the case that you have not been working.

What if you’re working, but not for your company?

A final point to note, we are beginning to hear of some PSC directors looking to undertake small pieces of work on a self-employed basis whilst furloughed. A word of caution, HMRC will be alert to such arrangements even if it takes until the submission your 20/21 Self-Assessment to pick it up. If until now you have not been registered as self-employed and the small pieces of work you might be looking to now do are very similar to that which you would have put through your PSC, you have to ask yourself if your proposed arrangement is truly in the spirit of the support on offer? What may present you with a short-term benefit right now, may pose a much bigger risk in the months to come.

If you have questions or if we can help in any way, please call our expert team on 01296 468483 or email info@orangegenie.com.