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“Furloughing” of Directors of Personal Service Companies Supplying the Public Sector

Posted: April 3, 2020
Posted: 03 April 2020

Measures were announced yesterday, and some commentators initially thought the changes meant that all directors of small companies could be furloughed, with the rules being likely to be extended to those supplying the private sector as well – this is not the scheme. Instead it is an added measure to help business/individuals, along with the furlough of employees and the help for the self-employed, that were both previously announced.

The measures specifically target relief for those who work in the public sector through personal service companies, or through PAYE, who do not have full employment status and work on short-term contracts or variable hours. These are now referred to as “Contingent Workers”.

Many public sector organisations have encouraged or allowed these Contingent Workers to operate through service companies, not gaining employment status (and in some cases not being liable for employer’s NI), in apparent conflict with HMRC which is attempting to reclassify many such workers as employees with PAYE/NI payable, or challenge the arrangements under IR 35.

The Contingent Workers include those operating as locum doctors and nurses, who contract the virus whilst working and have to take time off to recover – without this new scheme they would not be paid. Other workers include some staff working in public buildings which are now closed, such as libraries, museums, etc.

Under the new provisions, the Contingent Workers who cannot work due to Coronavirus will be paid 80% of their usual pay (in many cases through their personal companies), with a maximum of £2,500 per month, up to 31 May 2020 and backdated from 1 March 2020. The rules are specific in that the person must not be able to work due to sickness, self-isolation, government office closure, etc. It does not apply to anyone who is working from home. The workers cannot additionally claim under the self-employed or furlough schemes – IE they cannot receive money under this scheme into a personal service company and then try to furlough themselves as directors, receiving a further grant.

Click here for detailed government guidance.