When the original furlough scheme was introduced there were always going to be challenges of furloughing as a company director – particularly for sole directors of their own companies – with many of them finding that they couldn’t clear the necessary hurdles to access the scheme. However, those directors who did manage to meet the criteria now need to consider their position from 1 July when the flexible furlough scheme took effect.

There are effectively two different furlough schemes. There is the original ‘mark one’ version which ran from March to 30 June and a revised ‘mark two’ version running from 1 July to 31 October. For an employee – or director – to be furloughed under the mark two scheme, they must have been furloughed for the minimum three-week period at some point under the mark one scheme – or fall within some limited exceptions. This means that any director who failed to qualify for the mark one scheme will, in almost all cases, be unable to access the mark two scheme.

For those who did self-furlough under mark one, and can continue to furlough under mark two, there are a few key differences between the schemes. The two most significant are:

• Furloughed employees (and directors) will be able to work flexibly from 1 July and receive support for their furloughed time.
• From August, employers will have to contribute more to the cost of their furloughed employees’ salaries.

Under the mark one scheme, furloughed employees were not allowed to do any work for their employer during their furloughed period. Under the mark two scheme, employees can (with their agreement) be flexibly furloughed and work any combination of hours or days required by the business. Such employees should receive their usual pay for actual hours worked, while remaining entitled to furlough pay for their furloughed time.

To claim support for a partly furloughed employee, employers must first calculate the ‘usual’ hours worked for the employee during the furlough period, and then establish the actual hours they have worked.

HMRC guidance gives details of how this should work for employees with either fixed or variable hours. While the calculations are not intuitive – and employers are advised to resist the urge to follow their gut instinct and faithfully follow HMRC’s approach instead – it is possible, in most instances,  to get an answer for the purposes of the claim.

For directors, the question is not so straightforward. What are the ‘usual’ hours for the director of an owner-managed business? For many, it’s as much time as the individual can spend on the business. It’s certainly highly unlikely to be written down, or to have been included in a contract. Directors are also exempt from the requirements of the National Minimum Wage, so it isn’t possible to infer the hours that that they might have worked from the salary they received. For a director, any salary amount is often determined by reference to what is the most tax efficient payment, not to hours worked. One approach might be to use work diaries as evidence of usual hours usually worked in the past, but few will have kept such records.

Actual hours are also hard to determine for several reasons. To start with, it is unlikely that the director of a small business will have an existing system to record hours – so they need to get into the habit of keeping a timesheet at least for their period of flexible furlough.

As a further complication, directors were entitled to do some work while furloughed under mark 1 as they – unlike employees – were permitted to carry out necessary statutory duties and make scheme claims without breaching the scheme rules. Should any time spent now on statutory duties (activities which were never precisely defined) or making job retention scheme claims therefore be excluded in the actual hours declared under mark two? At present, there is no guidance on the point, although the safest presumption is probably to treat any time spent on statutory duties as actual hours worked, although that will reduce entitlement to furlough pay.

Without such guidance, there is a risk that a director might conclude that as they ‘usually’ work 80 hours a week – but are now only doing 10 hours plus seven hours of administration which they regard as statutory duties – they are still entitled to (roughly) seven eighths of their full furlough pay under the mark two scheme. HMRC is unlikely to share that conclusion without compelling evidence.

In practice, many directors are simply unfurloughing themselves during July, rather than trying to negotiate a way through the flexible scheme. Even if not operating at their usual levels, many will be doing what they can to keep their business going and not want to spend time and effort establishing their usual and actual hours.

In the meantime, any directors claiming under the mark two scheme for flexible furlough should keep good evidence of the work that they are doing, the hours that they are actually working and how they determined their usual hours.

Noel Guilford