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Insights | Coronavirus

The CJRS and director payrolls

What the third iteration of the furlough scheme means for director payrolls.

Last updated: 18 November 2020

ICAEW's Tax Faculty outlines what the changes to the Coronavirus Job Retention Scheme (CJRS) means for directors of small companies who are paid through an annual payroll.

Updated guidance 29 January 2021

Updated HMRC guidance from 26 January 2021 confirms that directors paid annually and claiming grants under the third version of the CJRS must align salary payments with claims.

Annual PAYE schemes

Many directors of small companies have an annual PAYE scheme, taking funds in year via a current/loan account and then as they near the end of their business year, when the accounts are finalised, repay the loan taking an annual salary and dividends as appropriate. 

CJRSV1 and V2

Eligibility for a grant under the first and second iteration of the CJRS required a payment of earnings in the tax year 6 April 2019 to 5 April 2020, reported on an RTI submission made on or before 19 March 2020.

The problem for those with 31 March 2020 year ends was they hadn’t reported the annual payment on an full payment scheme to HMRC by 19 March 2020. These people were therefore not “on the payroll” on 19 March 2020.


Directors who reported their annual payment after 19 March 2020 are now eligible for the third scheme, because an RTI submission has been made between 20 March 2020 and 30 October 2020 notifying a payment of earnings for that employee.

To avoid being in the same situation going forward, should the CJRS continue, some directors decided to move to a more regular payment of earnings from 6 April 2020, and have since been taking a small monthly salary, paid under PAYE, of say £1,000.

As a fixed amount was paid, either just in March or since April, the rules for fixed salaries state that reference salary is taken from the last pay period before 30 October 2020 (see Direction, para 13.2).

In the example of a director who has been taking a monthly salary of £1,000, their grant would be 80% of £1,000 paid in September.

If a director was last paid in late March 2020 (a larger annual amount), the grant would be capped at £2,500.

If the director’s employment contract indicated variable pay, then those paid in 2019/20 would be excluded because only earnings in 2020/21 can be referenced. Directors usually have fixed pay.

The not so good news concerns directors who were eligible for grants under the first and second versions of CJRS who have not yet had a payment for 2020/21, as they have remained on an annual payment basis and that payment is due after 30 October 2020. These directors will not be eligible for the new scheme on the basis that they have had no earnings reported between 20 March 2020 and 30 October 2020.

Key phrases

Relevant reference day

The relevant reference day will dictate the rules to follow for reference salary.

  • The relevant reference day is 19 March 2020 where a payment for 2019/20 was reported to HMRC on or before 19 March 2020.
  • Otherwise it is the last pay period before 30 October 2020.

Reference salary

  • For a fixed-rate employee the reference salary is the amount payable in the latest pay period ending on or before the relevant reference day.
  • For a variable-rate employee it depends on whether the relevant reference day is 19 March or 30 October.

If 19 March, use the greater of:

  • the average monthly/weekly/daily amount payable to the employee in the period within the tax year 2019/20 (or if less the period of employment) before the period covered by the CJRS claim began, and
  • the amount earned in the corresponding calendar period in the previous year.

If 30 October 2020, use the average monthly/weekly/daily amount payable to the employee in the period:

  • beginning on the later of 6 April 2020 and the date employment began, and
  • ending immediately before the first period covered by a CJRS claim began.

Usual hours/furloughed hours

For directors, a pragmatic view should be taken to try to evidence the hours worked to run the business based on the activity in the corresponding period last year versus the hours the business activity demands this year. The difference between the two are the furloughed hours.

Tax Faculty

This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.