The Chancellor is finally considering support for contractors working via a limited company

Treasury officials are at last deliberating a scheme that would support the millions of limited company contractors and small business owners who have previously been excluded from government Coronavirus packages, according to The Sun.

The scheme, which was put forward by a coalition of professional bodies, industry experts and campaign groups, could see the government offer a grant for sole directors of limited companies that have lost trading profits because of the pandemic. 

There are around 946,000 companies in the UK that do not employ anyone and 1.1 million micro-businesses that have been set up as director-owners. Many pay themselves a small PAYE salary and a variable dividend, which is dependent on annual profits.

While this is a legitimate and widely used accounting method to manage fluctuating income, it has left one million self-employed people with very little to no support for nearly a whole year. 

Scheme based on average trading profits

Towards the end of last year, the Federation of Small Businesses (FSB), campaign group Forgotten Ltd, the Association of Chartered Certified Accountants (ACCA) and the former senior advisor to the Office of Tax Simplification (OTS), wrote to the Chancellor proposing the Director’s Income Support Scheme (DISS).

The DISS would mirror the Self-Employment Income Support Scheme (SEISS), with limited company directors able to claim 80 per cent, up to £2,500 per month, of their average trading profits, before their dividends were taken.

It would be limited to those with trading profits of less than £50,000 a year and assessed on lost profits due to COVID-19, calculated from previous Corporation Tax returns.

The size of the grant a limited company director receives would be based on three years’ worth of accounts and they would need to prove that their business has been directly impacted by the crisis.

No guarantee yet the scheme will be introduced

Initial estimates suggest that the scheme could cost the Treasury between £2-3 billion, depending on take-up. However, a government source told The Sun there is still no guarantee the scheme will be introduced as they need to work out how to close a number of loopholes in order to avoid fraud, waste and legal challenges.

Rebecca Seeley Harris, an independent employment status and IR35 expert who helped draft the proposal, wrote on LinkedIn: “With a third lockdown, these businesses are suffering more than ever and it is imperative that the government takes action now to provide support.

“The Director’s Income Support Scheme (DISS) is a workable and targeted solution, which is why it is effective. There are other groups which also need support and I am looking at targeted solutions for them too. The government are listening and they are actively considering this proposal.”

‘Chancellor must avoid tax rises in near future’

In a statement to the House of Commons on Monday (11 January), Chancellor Rishi Sunak warned that the third national lockdown, while “necessary […] will have further significant economic impact”.

He told MPs that the economy is expected “to get worse before it gets better” and also hinted at tax rises as the “public sector finances have been damaged and will need repair.”

Liz Barclay of BackinBusiness, said: “We welcome the long-awaited news that the Treasury is considering a scheme to support millions of contractors, many of whom have struggled immensely this past year because of the pandemic.

“If the scheme is introduced, it will be a relief to those who were considering leaving this vital sector. However, the Chancellor must avoid any tax rises in the near future as this could hamper businesses trying to recover.

“There also remain some key questions about the scheme. Will the government back-date it and offer support to cover costs from last year? And what about the newly self-employed and those who do not have three years’ worth of accounts? They are legitimate self-employed people who deserve to be supported through these tough times.”