UK entrepreneurs who have missed out on coronavirus financial support packages because they are directors of limited companies have mounted a last-ditch attempt to persuade the chancellor to help them ahead of Wednesday’s spending review.
A consortium of professional bodies has urged Rishi Sunak to consider proposals for a “directors income support scheme” that would mirror the self-employment income support scheme (SEISS) under which sole traders can claim up to £2,500 per month.
This has excluded directors of limited companies who pay themselves via dividends, even though this is the standard accounting structure used by around 2m small UK limited companies, ranging from those with sole owner directors to micro businesses, which collectively employ 7.5m people.
“Treasury ministers have said they are open to creative proposals, and we think this solves the problem of identifying dividend income paid to directors in lieu of work, as opposed to received from a passive investment, said Craig Beaumont, chief of external affairs at the Federation of Small Businesses.
The grant proposal is estimated to cost between £2b-£6bn per three month claim period depending on which categories of director are supported, putting it on a par with the SEISS scheme, which cost around £7bn in its first three months of operation.
Under the proposals, directors who are a “person of significant control” would be able to claim 80 per cent of average trading profits before their dividends were taken — figures that can be evidenced via HMRC records, and verified by an accountant. Capped at £2,500 per month, the taxable grants would be paid into the company, not to individuals, which the FSB said would minimise the risk of fraud. Property and investment companies would not be eligible.
The FSB has jointly drawn up the policy proposal with the Association of Chartered Certified Accountants (ACCA), campaign group Forgotten Limited and tax specialist Rebecca Seeley Harris, a former senior adviser to the Office of Tax Simplification (OTS). The consortium is now pressing for an urgent meeting with Treasury officials.
“There are 7.5m people whose livelihoods depend on micro companies,” said Gina Broadhurst, an entrepreneur and co-founder of the Forgotten Limited campaign group. “In a survey of our members, 93 per cent said they didn’t think their businesses would still be trading by March 2021, and more than 70 per cent said they have had no financial support from the government of any kind during the pandemic.
“Some of the most successful British businesses were started at kitchen tables, yet home-based businesses have largely been excluded from local authority grants because they’re not in the business rates system.”
The campaign to support an estimated 3m workers including directors, PAYE freelancers and the recently self-employed — who are excluded from the government’s furlough and SEISS schemes — has gathered pace, with Metro mayors Andy Burnham, Steve Rotheram and London mayor Sadiq Khan pledging their support.
“Failing to act leaves a dangerous message,” said Mr Burnham at a press conference on Friday organised by campaign group Excluded UK.
“If you do go it alone, follow your dream and set up your own business, the message from the government coming back to you is 'you are on your own'. What message is that to send to the next generation of entrepreneurs?”
In a direct appeal to the chancellor to signal support in the forthcoming spending review, he added: “It's no exaggeration to say, chancellor, that people's homes, businesses, marriages and lives are hanging in the balance here. You need to do something now to save all of those things.”
A Treasury spokesperson said: “We have supported millions of people with our unprecedented support schemes, with 95 per cent of those with more than half their income from self-employment in 2018-19 potentially being eligible for the SEISS Grant Extension Grant.
“In some circumstances people may not be able to access SEISS as a result of restrictions designed to mitigate the risk of fraud. We continue to engage with stakeholders on ideas that could sufficiently address these issues.”
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