CJRS, limited company sole director, self-furlough & continue working with the same client?

joew71

[EDIT TO ADD] Yep it's clear this is no good legally and I won't do it. Neither should anyone else.

I am the sole director and sole employee of my personal services limited company.

I'm aware of the restrictions on sole directors if they self-furlough, including that there be no work for the company other than minimal statutory duties. There is no restriction from any furloughed employee continuing to work for other employers.

Martin suggests in a video that sole directors could furlough themselves as employees from their company and continue to work through other means. He suggested freelancing in a self-employed capacity.

I have a client who is continuing to offer me work through my company but I have lost other work and opportunities. This client will only engage contractors through limited companies.
This introduces the possibility that I could form a new limited company, apply for a new business bank account, acquire the necessary business insurance, and amend my contract with this client so that the contract is via the new company. I would then be performing no work for my original company other that statutory duties, and would appear to meet the requirements of CJRS as from that point on my employment would solely be through my new company.

I've seen an opinion that legally this is risky, as it would not be unrelated work but in fact exactly the same work for the same client. That the CJRS regulations as written do not directly prohibit furlough plus what is essentially a furlough-phoenix company, but that it is open to HMRC to query it in audit. The opinion also states that this could amount to diverting funds from the original company (I would have effectively stolen one of its clients to take with me to another company, even though I would be the sole director of both companies).

I have lost opportuities to coronavirus and I'm unable to do business development in person (which is where much of my work comes from), so I'm certainly suffering a downturn. That said it's clearly gaming the system to furlough myself as an employee only to carry on exactly the same work for the benefit of another company. If the second company already existed and employed me to work for an unrelated client it's obviously not an issue, but the same work for the same client risks HMRC challenging the furlough and as above possibly a violation of the Companies Act 2006 with respect to diverting funds.

What do you all think?

Sibbers123

you cannot ask an employee to undertake any activity which;

• makes money for your organisation or any organisation linked or associated with your organisation
• provides services for your organisation or any organisation linked or associated with your organisation.

Therefore, unless you start a business in a total new field, with different clients, you would be breaching these rules. 
You need to consider whether you are better off staying or furlough or going back to work.

Jeremy535897

If you set up company 2, it will be an associate of company 1, and if you are furloughed from company 1 you can do no work for company 1 or any employer linked to or associated with company 1.

If you set up as self employed, you avoid this trap, but you probably fall foul of the general anti avoidance rule in CJRS, which says:
"2.5 No CJRS claim may be made in respect of an employee if it is abusive or is otherwise contrary to the exceptional purpose of CJRS."

There will be other issues. It is not normally acceptable for a director of a limited company to profit from his office in such a way. You would be using the limited company's contacts with customers and suppliers, and possibly the company's assets. The better solution is considered to be furlough 3 weeks, time off furlough to do work, back on furlough after doing work. Even this has problems as you shouldn't be looking for work while on furlough.

unforeseen

I agree with your last but one paragraph. You are not allowed as it is a pretty obvious attempt to circumvent the rules. 

[Deleted User]

Jeremy535897 said:

If you set up company 2, it will be an associate of company 1, and if you are furloughed from company 1 you can do no work for company 1 or any employer linked to or associated with company 1.

If you set up as self employed, you avoid this trap, but you probably fall foul of the general anti avoidance rule in CJRS, which says:
"2.5 No CJRS claim may be made in respect of an employee if it is abusive or is otherwise contrary to the exceptional purpose of CJRS."

There will be other issues. It is not normally acceptable for a director of a limited company to profit from his office in such a way. You would be using the limited company's contacts with customers and suppliers, and possibly the company's assets. The better solution is considered to be furlough 3 weeks, time off furlough to do work, back on furlough after doing work. Even this has problems as you shouldn't be looking for work while on furlough.

In addition to this, flexible furlough starts in July which you could use to work part time. However I do not agree with what you are attempting to do, you are trying to manipulate the system for personal gain. If you can work, then work, if you do not then you can claim furlough, but it is morally wrong for you to try to attempt to find or create loopholes to allow you to benefit from both government support and continued business.

jimkelly

Why are you continuing on furlough if there is work available for you?

The answer surely is to come off furlough immediately, and return to it if there is no work available after you have completed said work?

joew71

Thanks everyone. Yeah it's clear that this hypothetical scheme falls afoul of anti-avoidance rule 2.5. (That's what I get for not reading the primary materials.)

jimkelly

Even before you get anywhere near rule 2.5, you state in your original post that, quote - "I have a client who is continuing to offer me work through my company"

On that basis, I have to ask again, why are you continuing to furlough yourself when there is work available for you?  This is against both the letter and the spirit of the furlough rules.

Why don't you just accept that work, see what happens and then refurlough after that if you still have no other work?  You're talking about forming another limited company to take on this work for goodness sake.  WHY?

joew71

The slightly embarrassing answer is that an associate - "friend" is too strong a word - boasted of doing exactly this so as to claim both work income and CJRS "income". I was also outraged at first but he wore down my resistance as he got me to admit that while I still had work from this client I was still seeing a downturn in work from my other clients (I often have multiple concurrent clients).

CJRS as it exists today is a good idea and better than nothing... but it is very much an all or nothing deal, and serves sole directors of personal services limited companies probably the worst of all its intended audience.

People in my scenario (some work still but less work than usual) have to choose between 80% of usual income but no work other than company statutory duties, or whatever the part-time work is... which might be less than 80% of usual income.

I agree the scenario I hypothesised is very much the worst case in terms of going against the spirit of CJRS as it would result in my gaining more than 100% of usual income. But if my current client accounted for, say, 50% of my usual income I would be faced with a difficult choice: accept 50% income but with the ability to look for more, or 80% with no ability to look for more.

When one is a short term freelance contractor with multiple clients usually on the go, there has to be constant business development activity or the pipeline is lost and that can in turn result in months of no work at all.

You're all quite correct to shame me about this. So many people have neither work nor CJRS; so many people have lost their lives or loved ones. I thought I'd perhaps found a way to close that 20% gap but I'll count my blessings.

joew71

And BTW I am delighted to have some serious ammunition to go back to my associate for why he's almost certainly in serious trouble if he did actually do as he boasted he would. I don't actually know if he did.

Jeremy535897

joew71 said:

And BTW I am delighted to have some serious ammunition to go back to my associate for why he's almost certainly in serious trouble if he did actually do as he boasted he would. I don't actually know if he did.

To be fair to Martin, his idea about becoming a self employed freelancer was valid when made, as it pre-dated the publication of the Treasury Direction.