Fear for directors left out of govt's income package

Fear for directors left out of govt's income package

Limited company directors may end up falling outside of the government's package of measures to help the self-employed during the Covid-19 lockdown.

Chancellor Rishi Sunak had bolstered the government's response to the coronavirus by bringing the self-employed into the fold of emergency income packages, but by his own admission this cannot extend to every worker in the UK. 

Seb Maley, chief executive of tax consultant for the self-employed Qdos, highlighted those individuals who pay themselves a salary and dividends through their own limited companies are technically considered employees of the business, and would fall outside of the government's help.

Mr Maley said this was despite taking the same risks as sole traders in some instances. 

The government has pledged to cover 80 per cent of self-employed workers' average earnings over the past three years, up to a maximum of £2,500 a month and with payments expected to start in June. 

Mr Sunak said 95 per cent of people who are majority self-employed will be able to use the scheme and qualifying individuals must have trading profits under £50,000. 

However, Mr Maley added: "Sole traders may end up slipping through the cracks and fail to qualify for the self-employment support, while the low salary most directors draw means the amount they'll receive - if anything - from the job retention scheme simply isn’t enough."

The government has pointed to the Job Retention Scheme has a possible support option during the coronavirus lockdown for directors who own their own company and are paid through PAYE. 

Mr Maley said: "Hundreds of thousands of people work this way in the UK - often out of choice, but sometimes out of necessity because their clients require them to.

"These individuals pay their fair share of  tax and offer businesses the flexibility and skills they need in circumstances like these, so for the government to all-but disregard directors of one person companies is particularly short-sighted."

Dave Chaplin, chief executive of ContractorCalculator, warned there were many owners of small UK businesses currently suffering amid the economic turmoil caused by the coronavirus lockdown. 

Mr Chaplin said:"The government has ignored a large section of the market. 

"It seems unfair that employees of all incomes are covered up to £2,500 per month by the job retention scheme, yet medium earning directors of their own one-man businesses are penalised during a time of national crisis simply because they are incorporated.

"This is often a requirement driven by their clients because they will not deal with sole traders."

Joanne Harris, technical commercial manager at the accountancy firm SJD Accountancy, warned "hundreds of thousands" of independent contractors and freelancers who work through their own limited company in the UK had so far fallen through the cracks of the government’s emergency Covid-19 measures. 

Ms Harris said even those directors which did qualify for the coronavirus job retention scheme suggested by the government could find themselves lacking in financial support.