Around three million freelancers, contractors and small businesses have missed out on emergency Coronavirus support for numerous reasons including, being newly self-employed or directors of limited companies.
In a last-ditch attempt to persuade the Chancellor to address their concerns ahead of the spending review, a coalition of small business leaders, tax experts and industry bodies have mapped out a series of measures needed to plug the gaps in the available support.
The Federation of Small Businesses (FSB), the campaign group Forgotten Ltd, The Association of Chartered Certified Accountants (ACCA) and the former Senior Advisor to the Office of Tax Simplification (OTS), have written to the Treasury outlining steps to support individuals who work through their own limited company.
They have proposed a ‘Director’s Income Support Scheme’ (DISS), which would mirror the Self-Employment Income Support Scheme (SEISS). Under the proposals, directors would be able to claim 80 per cent of their average trading profits, before their dividends were taken.
As with the Coronavirus Job Retention Scheme (CJRS) and SEISS, this would be capped at £2,500 per month. However, rather than being paid to the individual, this taxable grant would be paid into the company, which the FSB said would mitigate the risk of fraud. It also added that property and investment companies would not be eligible.
The letter states that such a proposal could be easily established with information that is already available to HMRC, such as looking at details of trading profits and remuneration submitted by business owners through returns.
The Treasury and HMRC have so far stated that to come up with a comparable scheme for company directors would be impossible because many pay themselves via dividends and there is “no way” to tell whether such income derives from business activity or other investment.
According to figures from the Department of Business, Enterprise and Industrial Strategy (BEIS), there are nearly one million non-employing businesses across the UK and two million micro-entities – those employing less than 10 people.
The bodies calling for the DISS stressed the importance of small businesses to the UK’s economic recovery in their letter, saying that “hundreds of thousands have suffered severe financial hardship, and are now at serious risk of closure.”
It warned that if businesses continue to go without support, “up to 7.5 million” people are at risk of unemployment.” As a result, “we will see fewer businesses in existence, and fewer jobs – these cannot be furloughed, as they won’t exist anymore”.
Georgina Broadhurst, co-founder of Forgotten Ltd, spoke of how “hundreds of thousands of hard-working, tenacious small business owners […] are currently looking down the barrel of a gun.”
She said: “After eight months without meaningful support, many businesses are on the brink of collapse or insolvency. Directors have found themselves having to take on debt or spend their life savings to stay afloat.”
Many freelancers and contractors have been left with no choice but to rely on their savings to survive financially. A recent survey by Qdos found that 70 per cent of freelancers had used more than £20,000 of savings during the pandemic, and a further one million have been pushed into debt, a study by trade body IPSE, found.
Forgotten Ltd’s Georgina added: “The furlough scheme has supported their 7.5 million employees, but without financial support for the directors and the companies themselves, there will be no jobs for staff to return to by spring.”
The coalition of professional bodies estimates this proposal would cost between £2-6 billion for every three months that it runs. For context, the SEISS scheme cost the Treasury £7 billion in the first three months.
Seb Maley, CEO at Qdos said: “The proposal will be welcomed by many contractors, but for some, it may be too late. Many have already used up their savings and their livelihoods have been destroyed, which has left them with no option but to leave self-employment altogether.
“We need the government to provide a long-term strategy that will not only support all of those excluded from the schemes but also offer incentives for them to continue working this way.”