Billions of pounds in taxpayer funds may have been wasted if a solutions-based support scheme is not put in place for limited company bosses, a tax policy proposal being examined this week by the government has warned. Up to 7.5 million limited company employees in the UK could end up affected and unemployed in a matter of weeks.
- Two million actively trading limited companies in the UK which are micro and small companies collectively employ 7.5 million people.
The proposal, The Directors Income Support Scheme (DISS), is a tax scheme that 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.
No bosses. No businesses.
“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 that the proposal is “apparently” being seriously considered by HM Treasury this week.
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.”
Without immediate emergency support of small and family business limited company directors, the UK economy and its taxpayers will struggle to new depths. Up to 7.5 million people, employed by limited company directors, could be facing unemployment in a matter of weeks if bosses fail to be able to take care of their own needs, leaving them little choice but to close their companies down.
But where will future funding for public services, including unemployment, come from if those 7.5 million are not employed? It means a reduction in tax revenue and a potentially huge burden on the welfare system and NHS, according to the consortium behind the proposals.
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.
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
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. No bosses. No business.
Latest support in Lockdown
Businesses in the retail, hospitality and leisure sectors are to receive a one-off grant worth up to £9,000, the Chancellor has announced this week following the latest national Lockdown measures. But there was something still missing in the support package: limited company directors.
The determination of the latest funding has been based, not on the potential economic activity of any one business, but rather on a dispersal of cash provided on a “per-property basis”. The government said this support is expected to benefit over “600,000 business properties”, worth £4 billion in total across all nations of the UK.
For those self-employed that are not within retail, hospitality or leisure, there will be an opportunity to apply to a £594m discretionary fund, details of which were still vague at the time of writing.
This discretionary fund will be spread across and made available for Local Authorities and the Devolved Administrations. The funds will be in addition to £1.1bn further discretionary grant funding for Local Authorities, Local Restriction Support Grants worth up to £3,000 a month and extension of furlough scheme.
The government has also provided 100% business rates relief for retail, hospitality and leisure businesses, with the furlough scheme now extended to April and 100% government backed loans, extended until March.
“As we have gone into another lockdown, the government has announced more grants for leisure and hospitality, furloughs for the employees and SEISS for the self-employed. This is fantastic but, still nothing for the limited company director,” said Seeley Harris.
“As with SEISS,” she sais, “they should ‘not let the perfect be the enemy of the good’ and make a decision to adopt it now before it is too late for a lot of these businesses.”
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.