Employment law and tax law differ so a director can be taxed as an employee but not necessarily have the rights of an employee under the Employment Rights Act such as statutory redundancy pay, unfair dismissal, auto enrolment, National Living Wage.
The sole director/shareholder has two sets of duties:
- Statutory duty to file accounts and tax returns, administrative duties such as ensuring post is opened and answered, responsibility for the bank account
- Operational duties to carry out revenue generating work.
Companies Act 2006 requires that a service contract is in place for each director and is available for inspection by shareholders at the registered office.
A sole director/shareholder can be an employee (and therefore have rights under the Employment Rights Act) if there is an employment contract (which is separate or combined with the service contract mentioned above) or if they act and are treated as employees. This position has changed recently in the courts. Previously, controlling directors/shareholders were held not be employees.
Can a sole director be furloughed under the Coronavirus Job Retention Scheme?
A sole director can only be furloughed in respect of employment duties. This allows the director to still fulfil his statutory duties to the company. The director must have been receiving a salary prior to 19 March 2020. The company must have been operating a PAYE scheme and made RTI submissions for the director on or before 19 March 2020. Ideally there should be a written employment contract.
The decision to furlough needs to be declared in Board minutes and communicated in writing to the director along with details of furlough pay and duration. The director needs to give their agreement.
The director cannot perform any revenue generating work for the company during furlough.