Empowering the Freelance Economy

Fate of limited company directors and PAYE contractors in HMRC’s hands

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The Directors Income Support Scheme, known as DISS, is expected to hear of the Treasury’s decision in a matter of days, Forgotten Ltd. has confirmed with The Freelance Informer.

Northern Ireland has outpaced the UK this month on its COVID support for limited company directors announcing a £20m funding package for its Company Directors Scheme. While the news is welcome and could put pressure on Chancellor Rishi Sunak and Minister for Small Business Paul Scully, it is not nearly the size of the package proposed and required by the UK’s DISS consortium, given the number of directors, businesses and employees to be affected if the Directors Income Support Scheme (DISS) is not green-lighted.

The DISS proposal is a tax support scheme aimed at two million actively trading limited companies could keep 7.5 million people in employment if support is provided. How long the company directors running these businesses can survive personally without on-parity SEISS support before going bust hangs in the balance with HMRC.

The proposal has been presented so that it should not be “too labour intensive” for HMRC “nor open to fraud” because the information can be evidenced. At a rough estimate, the scheme could cost between £2 bn and £6 bn depending on how many directors the government decided to help.

Six MPs have signed an Early Day Motion calling for DISS to be ‘urgently implemented.’ The motion at the time of writing had 20 supporters, none of which were from the Conservative Party.

The DISS scheme solution

The scheme would be based on the CT600 trading profits of small actively trading companies for the benefit of the directors (s). The grant would, however, be paid into the company so, would be taxable income.

The scheme would mirror the same provisions as the Self-employed Income Support Scheme (SEISS). The support would be paid into the company and form part of its taxable profits. It would not be paid to the director as an individual but, could be used as taxable income or for cash flow, for
example.

For example, the SEISS scheme that runs from November is based on those self-employed individuals that have claimed previously. When they claimed previously, they had to prove three years worth of accounts, the DISS scheme would be on the same basis.

This may still mean that some company directors are excluded from the DISS scheme because it is based on a company that was actively trading and has three years of accounts and cannot be a property or investment company.

However, this does not mean that separate polices could not be developed or adapted for the newly self-employed following the initial acceptance of the DISS proposals.

The important thing is to get as many limited company directors supported based on current support policy parameters (i.e., proving you are a business with three years of trading) because trying to reinvent the wheel in tax policy may be seen as too onerous and cast aside rather than adopted, which would put millions back to square one.

For those that do have three years of accounts, the CT600 trading profits would need the director’s remuneration added back in to make it the equivalent of the trading profits of the self-employed individual using the SEISS scheme. This scheme would cover an eligible individual who was an executive director and a Person of Significant Control (PSCs).

The eligible individual could be:

  • A sole director/shareholder in a non-employing company of which there are 946,0001
  • One of several working directors or PSCs in a micro-entity, of which there are 1,157 million
  • An actively trading small company, of which there are two million.
  • The company needs to be actively trading and not an investment or property company.

The scheme would be verified either by an accountant or self-certified by the director of the company, which is protected from fraud by the director’s duties.

The furlough and grant system: is it being directed ineffectively?

  • Many company directors found themselves unable to furlough themselves as this would prevent them from working, and this could have meant the demise of their small business. Some were actively excluded due to running an annual payroll with an RTI submission date after 19th March. For those that could furlough, the payments were low, because they were based on PAYE earnings excluding dividends.
  • Grants – Many micro and small businesses have received no grant funding, without commercial premises; options were extremely limited, and discretionary grants were a postcode lottery. Grant funds were fully allocated in less than 30 minutes of applicants applying online in areas, such as Devon.
  • Impact – Employees have been protected by furlough, but those running the business – business owners – have been forced into debt and many are now struggling to stay afloat.

IR35 and PAYE self-employed

The Parliamentary Public Accounts Committee highlighted in a report on 20 January that the “quirks in the tax system” have left some groups of taxpayers excluded from the financial support that other taxpayers received throughout the COVID-19 pandemic. 

The committee members said that they were concerned, for example, that some self-employed taxpayers may have moved onto payrolls because of HMRC’s IR35 rules, but were not employed at the relevant time, and so lost eligibility to COVID-19 support schemes.

Some of those who moved onto payrolls, because of the pre-emptive actions of employers, could have benefited through the Self-Employment Income Support Scheme had they remained self-employed, suggested the Committee.

  • Similarly, some other freelancers, with verifiable employment and tax records visible to HMRC, may also have been excluded from the Coronavirus Job Retention Scheme (CJRS).
  • In some sectors, such as the creative industries, it is common for freelancers to work on a series of short-term employment contracts with gaps in between. HMRC maintains that it has been as flexible as possible, for example, by allowing, for the purpose of eligibility to the COVID-19 support schemes, the extension of short-term contracts and rehiring of employees who were made redundant.”
  • Meanwhile, some large companies that have received support from the government during the COVID-19 crisis have continued to pay out dividends and high executive salaries.

The Parliamentary Committee recommends: HMRC should, within six weeks of this report (20 Jan):

  • Publish an explanation for the reasons why it cannot help those freelancers and other groups that have been excluded from receiving any support and what would be required to determine eligibility for financial support for that group of taxpayers; and
  • Consider the support it can provide for those taxpayers that have, due to the IR35 rules, moved onto payrolls and missed out on support from the COVID schemes, for example, by reviewing whether it can use an average of wages in the past three years to determine grants.

No bosses. No businesses. No work.

“Employees have been protected by furlough, but those running the business – business owners – have been forced into debt and many are now struggling to stay afloat,” said Rebecca Seeley Harris, co-author of the DISS proposal.

Seeley Harris, an Independent Employment Status and Off-payroll & IR35 Expert and a former senior adviser to the Office of Tax Simplification (OTS),  told The Freelance Informer in a previous report this month that the proposal was being seriously considered by HM Treasury and ForgottenLtd has since confirmed that an update is expected by the end of January.

Seeley Harris, also an NHS Volunteer, said within the proposal document, which The Freelance Informer has seen, that the “£55bn spent on furlough will have been wasted if there are no companies for staff to return to in Spring.”

The policy proposal also highlights to voters and taxpayers that “billions of pounds of furlough support will have been wasted,” Seely Harris and her co-authors, ForgottenLtd, the Federation of Small Businesses (FSB) and the ACCA have said in their report to MPs.

The DISS consortium is said to be putting pressure on Rishi Sunak and Jesse Norman to realise the economic repercussions of not enacting the proposals and to make a decision on DISS before more company directors have to close their businesses down permanently.

“DISS is the only workable solution to provide help for this sector of the business community,” said Seeley Harris.


To learn more details of the DISS policy strategy and if you meet the eligible criteria, please get in touch with Forgotten Ltd, which you can contact through their website here.

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