COVID-19: Government support, directors’ duties and responsibilities as an employer

Last updated: 24 April 2020.

Through the Chancellor's budget and the raft of follow up announcements, the Government has unveiled a range of support to businesses and workers – those measures, like the current times, are unprecedented outside of wartime Britain.

The Government's stated intention was to get money moving to businesses from Monday 23 March 2020, recognising the imminent threat to the future solvency of many businesses; however, behind the bold announcements there remain significant challenges to finalise the processes for accessing funds and the payment mechanisms.  As more detail is released, we will continue at intervals to update the content of this briefing.

For directors, the package of measures may provide a potential lifeline to solve immediate cashflow issues and get their business through the COVID-19 induced crisis.  The Government has also announced that it will take steps to relax certain aspects of the regulatory framework, to address the fact that directors are faced with making decisions in the most extraordinary of financial circumstances and should not therefore have to meet all of the same statutory obligations or the same potential liabilities if they are breached. This change is considered in further detail below and here.

On 20 April, the Government launched an online tool for businesses to check eligibility for the various support schemes.

The Government's measures

Measures to remove liabilities from balance sheets or provide non-repayable funding

Coronavirus Job Retention Scheme

This is applicable to any employer in the country (small or large including charitable and not for profit) and accessible through HMRC. This Government grant will cover 80% of the salary, up to a total of £2,500 per month, for employees who are not working and who would otherwise have been laid off. The Scheme will be backdated to cover the costs of wages from 1 March 2020 and is initially in place for 3 months but will be reviewed and extended if thought necessary.

Statutory Sick Pay

Reimbursement of employers who have less than 250 employees (as of 28 February 2020) for up to two weeks statutory sick pay for each employee who is absent from 13 March 2020 due to self-isolation or as a result of COVID-19.  The Government has stated that the rebate scheme is being developed, so the timing and mechanism of repayment is currently unclear.

Changes to benefits

There will be a £1000 per year increase in the Universal Credit standard allowance for the next 12 months. There will also be a £1000 increase in Working Tax Credit basic element for the next 12 months.

For the self-employed

Introduction of a direct cash grant of 80% of profits (provided trading profit are less then £50,000), up to £2,500 per month for at least three months, to provide parity for the self-employed as regards the Coronavirus Job Retention Scheme. HMRC will identify eligible taxpayers and contact them directly with guidance on how to apply.

There will be a suspension of the minimum income floor for those affected by the economic impacts of coronavirus, meaning that self-employed can access universal credit at a rate equivalent to statutory sick pay for employees. In addition, self-assessment income tax payments will be deferred until January 2021.

For individuals

  1. Homeowners can access a 3 month mortgage repayment holiday.
  2. Eligible renters can access the Local Housing Allowance which will be increase to cover 30% of market rents.

100% business rates holiday 2020/2021

The business rates holiday applies to occupied properties used:

  • As shops, restaurants, cafes, drinking establishments, cinemas and live music venues.
  • For assembly and leisure.
  • As hotels, guest and boarding premises and self-catering accommodation.

The guidance (available here) provides extensive detail as to what is considered to be included in each of the above categories but is not intended to be exhaustive. In addition, the business rate holiday will also apply to nursery businesses whether a provider on the Ofsted Early Years Register or premises wholly or mainly used for the provision of Early Years Foundation Stage.

Ratepayers in those categories that occupy more than one property will be entitled to relief for each of their eligible properties. The relief is effective from 1st April 2020 for 12 months

Local Authorities are required to adapt their own schemes to implement the business rates holiday and will be reimbursed by the Government, meaning that there is likely to be some variation in the process of different local authorities.

However, businesses should only need to actively apply for this holiday if the Local Authority has erroneously sought to charge them rates despite them qualifying for the holiday.   It is, however, important to ensure any scheduled direct debit payments are cancelled. 

There are calls for the business rates holiday to be extended to other sectors, including manufacturers who have been forced to shut down – we will await the Government's response to this.    

Grants (England)

£25,000 grants will be provided to retail, hospitality and leisure businesses with premises with a rateable value of £15,000 to £51,000 as at 11 March 2020.

There is also a £10,000 grant scheme for: (i) businesses in the above sectors where the rateable value is less than £15,000 and (ii) any businesses (ie not sector specific) who are eligible for small business rate relief or rural rate relief on 11 March 2020.  Similar schemes apply in Wales, Scotland and Northern Ireland.

Further details can be found here. The Government currently states that businesses do not need to take any further steps as Local Authorities will contact them and the Government has now issued its guidance to Local Authorities.  However, given the nature of that guidance there is likely to be a difference in implementation across Local Authorities. 

Fishing: A fisheries support scheme was announced on 17 April for under-24 metre vessel owners with fishing licences who recorded sales of £10,000 or more in 2019 – payments for up to 3 months will be made to help cover fixed business costs. Further details and eligibility criteria will be announced by the Marine Management Organisation who began contacting eligible registered owners directly on 20 April. Please see further details here.

For example, looking at the councils responsible for two of our main offices, Plymouth Council issued letters to eligible businesses on 26 March 2020 with the details needed to apply whilst Bristol appears to have simply opened its online application portal. So businesses should check the website for their Local Authority to understand their process and might potentially need to make visits to premises to pick up relevant correspondence, where sent by post.

For example, looking at the councils responsible for two of our main offices, Plymouth Council currently ask businesses to be patient and wait to be contacted whilst Bristol is requesting that businesses email them with their business rates number and the title "Grant Application". So businesses should check the website for their Local Authority to understand their process.

Measures to allow businesses to lengthen payment terms on government debt

Deferment of VAT

Companies can defer VAT payments due between now and the end of June 2020 (although note that VAT returns still need to be filed on time). All UK businesses are eligible with no applications required; the offer is an automatic one, however any existing direct debit mandates would need be cancelled . Companies will have until the end of the 2020-21 financial year to pay accumulated liabilities.

Time to Pay

These arrangements have long been used by companies in financial distress to try to negotiate extended and periodic payment terms for existing HMRC debt.  The fact that the Government has specifically referenced this option in its guidance, confirmed it is investing in more call handlers and offered other tax payment concessions must mean that it will take a more benevolent approach to requests than it has historically done.

HMRC have set up a dedicated telephone number 0800 0159 559 for businesses and self-employed people needing support around their tax payments (the line is open 8am – 4pm, Monday to Friday).  HMRC will consider options including instalments, suspending debt collection proceedings and cancelling penalties and interest where due to administrative difficulties immediate contact with HMRC has not been possible.

Applying for more time to file accounts

Companies can now apply to extend the deadline for filing their accounts by three months if the current deadline would be missed due to the impact of COVID-19.  

Measures to allow businesses to access government-backed and guaranteed, but repayable, loans

Coronavirus Business Interruption Loan Scheme (for SMEs)

The scheme is made available by the British Business Bank through its accredited lenders, meaning you would apply directly to the lender. A list of the 40+ lenders can be found here but includes the main high street banks. Applications by additional lenders to be accredited are also being accelerated.

Key Terms: For lending up to £5 million by overdraft, invoice and asset finance and term loan with lending periods of up to six years for term loans and asset finance and up to three years for overdrafts and invoice finance.

The Government will cover the first 12 months of interest payments and any lender levied fees meaning borrowers will benefit from no upfront costs and lower initial repayments, although these amounts would need to be settled by the borrower over the life of the loan.

At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under. Lenders will not take personal guarantees for lending below £250,000 and for lending above £250,000 the recoveries under a personal guarantee are capped to a maximum of 20% of the outstanding balance of any facility. An individual's principal private residence cannot be taken as security for any lending.

Eligibility: Whilst full eligibility criteria is a matter for the accredited lender, the quick eligibility criteria include:

  • The application is for business purposes
  • UK based SME with annual turnover less than £45 million
  • 50% of turnover generated from trading activity
  • Facility will be used to support primarily trading in the UK

In addition, borrowers will need to:

  • Operate in an eligible sector (Full details can be found here).
  • Self-certify that they have been adversely impacted by the pandemic. 
  • Have a borrowing proposal which, were it not for the COVID-19 pandemic, would be considered viable by the lender. The lender must also believe the provision of finance will enable the borrower to trade out of any short to medium term difficulty.

Applications:  The BBF advises that businesses should approach their own lender/finance provider first – ideally via the lender’s website initially and should consider approaching other lenders if they are unable to access the finance they need from their current lender. There is an FAQs page for borrowers here.

Timing: the CBIL is intended to be available from 23 March 2020 for six months but much will depend on the speed at which individual lenders can assess and process the loan applications as to when money will actually be advanced into an account.

Coronavirus Large Business Interruption Loan Scheme

To fill the gap between the original SME focussed Coronavirus Business Interruption Loan Scheme and the commercial paper scheme below, on 3 April 2020 the Government announced the introduction of the Large Business Scheme for businesses with annual turnover of £45m-£500m. The Scheme launched on 20 April, made available by the British Business Bank through its accredited lenders. Further details can be found here.

Lenders can provide up to £25m for businesses with a turnover from £45m up to £250m, and up to £50m for businesses with a turnover of over £250m, in each case on repayment terms of up to 3 years. As with CBILS, the government is guaranteeing 80% of the facility.

Finance is available in the form of term loans, revolving credit facilities (including overdrafts) and invoice and asset finance. As with CBILS, no personal guarantees will be required for facilities below £250k.

Unlike CBILS, the borrower will be immediately liable for the first 12 months of interest payments and any lender levied fees.


Whilst full eligibility criteria is a matter for the accredited lenders, the quick eligibility criteria are that your business:

  • is based in the UK.
  • has an annual turnover of between £45 million and £500 million.
  • has been adversely impacted by Coronavirus and has not received a facility under the Bank of England's commercial paper scheme (below) - this can be self-certified.
  • is unable to secure regular commercial financing.
  • Has a borrowing proposal which the lender would consider viable, if not for the coronavirus pandemic and believes will enable you to trade out of any short-term to medium-term difficulty.

Excluded sectors are: credit institutions, insurers and reinsurers (not insurance brokers), building societies, public-sector bodies, further-education establishments (if they are grant funded) and state-funded primary and secondary schools.

The good news for private equity portfolio companies is that the British Business Bank has confirmed that any company with a private equity backer (even where the private equity has a dominant stake) will be treated as a separate company for the purposes for the purposes of assessing turnover.


As with CBILS, you should approach your existing bank/ lender in the first instance. Requirements and process will vary from lender to lender but they will typically need you to provide up to date management accounts, cash flow forecasts and supporting documents such as your business plan, historic accounts and details of any assets of the business.  

Bounce Back Loan Scheme

Launching on Monday 4 May 2020, the Bounce Back Loan Scheme will allow SMEs to borrow between £2,000 and £50,000 over a term of up to 6 years, administered through accredited lenders like CBILS.

To be eligible, businesses must be UK based, negatively affected by the Coronavirus, and not an 'undertaking in difficulty' on 31 December 2019. Banks, insurers, reinsurers, public sector bodies and state funded schools are not eligible.

In response to criticism that small businesses were struggling to access cash under CBILS, these loans will be 100% Government backed and designed to be quick and easy to apply for – money should be released within 24 hours of the application. If businesses have existing CBILS borrowing (up to £50,000) they can transfer this to the Bounce Back Loan Scheme at any time until 4 November 2020.

There will be no fees, and no interest payable for the first 12 months. The Government is working with lenders to agree a low rate of interest for the remaining loan term.

See more information here.

Start-up Support: The Future Fund

The Government (via the British Business Bank) has announced that it will provide investment in the form of a loan (convertible into equity) from £125k to £5m subject to at least equal match funding from other private investors. It is set to open in May and remain open to applications until the end of September 2020.

Eligibility: Eligible businesses must:

  • be based in the UK.
  • be able to attract at least equivalent match funding from third party private investors/ institutions.
  • have previously raised at least £250,000 in third party private investors in the last 5 years.

There will be additional eligibility criteria which has not yet been published.

Headline Terms: The headline proposed terms have been made available here.

Bank of England – purchase of commercial paper 

For larger businesses, selling short term debt (so called commercial paper) to the market is a cost effective way of raising working capital.  Under the new Bank of England ("BofE") facility to be provided from 23 March 2020, the BofE will purchase commercial paper from companies that make a material contribution to the economic activity in the UK.

The BofE have indicated that the following would be anticipated to meet the criteria:

  • UK incorporated companies, including those with foreign-incorporated parents and with a genuine business in the UK. 
  • Companies with significant employment in the UK or with their headquarters in the UK.

However, they will also consider applications where (i) the company generates significant revenues in the UK, (ii) serves a large number of customers in the UK or (iii) has a number of operating sites in the UK.

Whilst companies that do not currently issue commercial paper are eligible it seems likely that the majority of applicants will be from those that do.

There is a required minimum short-term credit rating of A-3 / P-3 / F-3 from at least one of Standard & Poor’s, Moody’s and Fitch as at 1 March 2020 – that reference point is deliberately set prior to the main impact of Covid-19 on firms’ short-term credit ratings. If no short term credit rating is available, the Bank will consider if longer term rating can be used or any other assessment

Maximum maturity for commercial papers is 12 months and the BofE will purchase at a spread above a reference rate, based on the current sterling overnight index swap.

What this means for employers

Help from the Government with costs will be hugely welcomed by employers.

Primarily, it is a scheme designed to support temporary lay off of employees and avoid compulsory redundancies where the business anticipates sufficient bounce back after the current crisis is over.

It also supports laid off employees during that time by giving businesses the tools to pay a certain level of wage during the lay off period.

UPDATE 27 March 2020: The Government has published more detail of how the furlough scheme will work in practice. You can read our summary and analysis here.

We recommend that the key points for consideration are as follows:

'Furlough' lay offs

  • The job retention scheme allows employers to temporarily place an employee on 'Furlough' which is a temporary requirement for an employee not to attend work because you do not require them due to lack of demand and insufficiency of work for them to do. Note, when an employee is placed on furlough the current position is that they are not required to carry out any work at all.

Reduced working hours

  • It is not likely that the scheme will apply to 'short time' working where you need to reduce working hours but not lay an employee off completely. We will confirm as soon as more details are available.

Implementing the scheme

  • Up to 80% of wage costs will be covered by the government. Employers are able to top up to the full salary amount but are not required to. This is subject to a cap of £2,500 per month employers must follow the correct legal procedure to put changes in place for affected employees.
  • How furlough is implemented depends on whether you have formal lay off and short time working provisions in the employment contract and will also vary depending on whether you formally recognise a Trade Union. If no such provisions are in place and there is no recognised Trade Union some form of consultation and voluntary agreement to be placed on the scheme is certainly advisable to prevent claims for breach of contract or unlawful deduction from wages arising and we can provide further advice on this depending on the needs of the business.
  • For employees earning more than the capped amount lay off pay will be a greater reduction in their income and will need more careful consultation ahead of implementation.
  • Where the business is suffering financial hardship but there is not a reduced need for employees to attend work, it is not clear whether the grant can be claimed and it appears unlikely as the chancellor stated that the support is for 'furloughed' employees
  • Therefore we recommend initial consideration of areas where you have a completely reduced need for employees first. Where businesses have been forced to close due to the government advice this will be a straightforward decision but where you are a business suffering as an indirect result of the current impact of measures careful consideration will be needed of how to best benefit from the rules of the scheme when they are fully announced.

Reinstating employees

  • It has been confirmed that the grant can apply to lay offs and redundancies which occurred prior to 20 March, up to 1 March, therefore it may be both possible and necessary to reinstate such employees and apply these measures instead if they wish to accept reinstatement. They must be placed on leave and not put back to work ( per treasury guidance.)
  • It has also been confirmed that the grant is designed to prevent redundancies. We therefore recommend that if you were planning redundancies in response to the current crisis you consider whether temporary furlough maybe more appropriate. If the financial issues are likely to be more long term then redundancies may still be necessary but they do come at a cost for notice pay and statutory redundancy pay therefore financial analysis of the potential for using the new government grant versus cost of redundancies is essential.
  • Where there are groups of employees and the business requires less employees but is still operating at some level of capacity, it may be possible to offer applications for voluntary furlough but advice will be needed on how to make a decision on which employees are selected for furlough.

Workers who may not qualify

  • Self employed workers are not within scope for these provisions. Technically zero hours contract workers may not be either but if they are on PAYE and have undertaken regular engagements it may be possible to use the scheme to place them on furlough and cover some of their average wage costs, further details are awaited on this.
  • Employees who are sick or self isolating but not laid off will be entitled to the pay set out in the table which can be found here and are not covered by these provisions.
  • It appears likely that HMRC will put in place the wages reclaim mechanisms in the next 2-3 weeks. It is not yet clear whether reclaim covers pension costs, National Insurance and Tax and we will update the position as soon as we have that information.

It is crucial to apply the correct procedures to consulting on furlough lay off, reduced pay or short time working provisions and our employment team can advise on the correct process for this to avoid claims arising. 

What this means for directors

The Government's measures are very welcome, but the key for directors will be to understand whether they are sufficient to enable their business to weather the virus and recover in the longer term. As is evident from certain measures announced, the Government will still be looking to recover their money when the business recovers, meaning that directors need to be cognisant of which support schemes this applies to and whether the level of borrowing taken in the short term is serviceable in the future.

Accessing these measures now may aid cashflow in the short term but directors also need to consider and address the resulting balance sheet issues. This needs to be carefully thought through by directors on a situation by situation basis.

Directors' duties

Previous iterations of this briefing noted that, even in the most extraordinary of times, with business effectively beholden to the decisions of a Government designed to curb the effect of a global health pandemic, directors remained subject to the same statutory framework of duties that applied in ordinary times. As set out in this article, the Government has now confirmed that it will look to suspend one aspect of those duties, the wrongful trading provisions detailed below, for a limited period of time. However, all other duties remain unchanged.  

For example, during any period of financial distress for a company, the directors' general common law duties to act in good faith and in the interests of the company remain unchanged. However, where there are potential concerns around insolvency, for whatever reasons, the duty to act in the best interests of the company changes from a duty owed to the company's shareholders to a duty owed by the directors to the company's creditors generally. 

Therefore, for many directors at this time, the decisions they are forced to make to try to save or preserve their business, whether in respect of their workforce or the take up of financial lifelines, will need to have as their focus, the interests of their creditors, not their shareholders. For example, will the position of creditors be improved or worsened by any particular decision?  

The Government has also confirmed that it will be seeking to expedite certain insolvency reforms to provide companies with breathing space and protection from creditor action; it seems likely that this will include a version of the company moratorium (on which consultation has previously been sought).  One step already taken by the Government along these lines is to introduce legislation preventing landlords from forfeiting a business lease for non-payment of rent until at least 30 June 2020, with a power to extend this period.

Consideration may also be given to expediting other insolvency reforms, such as the company moratorium (on which consultation has already been sought) which is designed to protect vulnerable businesses and give them short term breathing space and protection from creditor action.

One step taken by the Government along these lines is to introduce legislation preventing landlords from forfeiting a business lease for non-payment of rent until at least 30 June 2020, with a power to extend this period.

Can directors be furloughed?

This is a question that has come up a lot recently: can a director be furloughed? Are directors covered by the CJRS?

And the answer is yes, provided they meet certain conditions required to access the scheme, directors can be furloughed. These conditions are that the director is paid through PAYE and that they were on the payroll on or before 19th March 2020.

Wrongful trading

In normal times, the wrongful trading provisions within the Insolvency Act 1986 provide that a director can be made personally liable for the losses of a company where they continue to trade in circumstances where there was no realistic prospect of avoiding a formal insolvency event, such as an administration or a liquidation.

Those provisions are to be suspended retrospectively for an initial three month period.  This means that for that period, directors' assessments of whether there is a prospect of avoiding insolvency and, if so, is it a realistic one, now has a partially reduced emphasis.  However, it remains relevant for directors to consider as at some stage the provisions will be reintroduced and as soon as they are, so will the issue of personal liability for trading losses.  It also gives some insight to directors in respect of the merits and risks of continued trading given that their other statutory and common law duties, such as their fiduciary duties, remain unchanged.

Protective steps

One of the challenges for directors will be to make these assessments given the uncertainty about the length and extent of the Government's isolation policy and the pandemic. Never before has it been so difficult for directors to make these assessments; but hard doesn't mean it is not something that can or should be avoided and there are steps that directors should take to protect themselves:

  • Ensure all directors have access to relevant financial information.
  • Meet regularly as a Board (taking account of social distancing and virtual meetings) and keep careful notes of the discussions held.
  • Record the reasons why key decisions were made and specifically those dealing with the prospects of continued trading including the impact of the decisions on the creditors, with careful consideration where particular creditors receive different treatment to others (avoiding creating an intended preference and taking account of good business reasons).
  • Seek professional advice from those within the restructuring community where that particular skill set is not already within a Board's capabilities.

If you have any questions on the above content or COVID-19 more generally, do get in touch.