Contractors’ Questions: Can I furlough myself as a buy-to-let limited company director?
Contractor’s Question: I’m an umbrella contractor for the most part but do run a limited company for my plan B -- a few buy-to-lets plus a few holiday lets. As the market for property and overnight stays is still not great, can I furlough myself under the CJRS?
How much would I receive from the furlough scheme? Presumably, I’d be furloughed only as the director of my property business so can I keep contracting and doing my tech day job via my brolly undisturbed, and only down tools on my property portfolio while receiving the govt grant?
Expert’s Answer: You can be furloughed for one business while continuing to work for another. The issue you face is whether you can meet the conditions for furloughing in relation to your property business. It’s a fair question, as it’s a somewhat grey area.
Ninety-nine per cent of the time, contractors running a separate limited company for buy-to-lets or holiday lets would not be drawing that income as a salary. If they were, their accountants should be hauled over hot coals for advising it! It’s not a tax-efficient strategy and, as such, the contractor would end up paying additional unnecessary tax and NIC that they could otherwise, quite legally, not incur.
Dividends, but if salary…
All contractors with whom we’ve dealt who also run a ‘Ltd’ for their buy-to-lets or holiday lets, irrespective of whether they contract through an umbrella or PSC, draw that secondary income in the form of dividends. In doing so, they do not technically qualify for furlough through the CJRS scheme.
But for argument’s sake, let’s imagine that they were ill-advised by their accountants, and did draw a portion of that secondary income (relating to the properties) in the form of salary. In that instance, it’s possible that the contractor could furlough themselves, but there are certain conditions that they have to meet.
Potential eligibility: here’s how
The primary condition for eligibility for the Coronavirus Job Retention Scheme (CJRS) is that a person designated as furloughed does not undertake any work while furloughed. If you are also a director of the company, you can carry out minimal administrative activities to fulfil statutory responsibilities under the Companies Act such as filing accounts. The relevant Treasury Directive can be read here.
The important point to note is that you should not carry out any of the “usual responsibilities that involves or supports income generation”.
Whereas this is clear with a trading/consultancy business, the situation is less clear with a property investment business that receives a rental or passive income stream.
What’s your personal involvement?
If you manage the properties yourself, it will not be possible to down tools as such. Presumably, you would have to be available to deal with any issues that might arise in the property portfolio. My view, therefore, is that the primary condition will be difficult to meet in particular with self-managed property portfolios.
If, on the other hand, your property portfolio is large enough that you have a staff structure or the properties can be managed by third-party agents without any involvement from you, then arguably it may be possible to demonstrate that you have ceased working for the furlough period.
However, even in this example, there may be difficulties. For example, if the business was operated in this way prior to furlough with no involvement from you, then to what extent can you be seen to have ceased work during the furlough period?
Making a CJRS claim as a property investor: in short
In conclusion, anyone thinking of making a claim for a job retention grant in relation to a property investment portfolio will find it difficult to meet the eligibility criteria. That is, unless they can clearly demonstrate that they have abdicated their responsibility for management of the business while furloughed, and that other persons are available to take over the management during the furlough period.