Speaking at a Treasury select committee meeting this morning (April 21), Andy Chamberlain, director of policy at the Association of Independent Professionals and the Self-Employed, said limited company directors “need some help to survive the crisis”.
He added: “They are getting very little support compared to some other groups, and they will need some help to survive this crisis that same way we’re trying to make sure others can survive this.
“And they will be the ones we turn to when we try to get the economy going on the other side of this, so it’s important we support them.”
Limited company directors do not qualify for the government’s Self Employed Income Support Scheme — which covers 80 per cent of self-employed workers’ earnings providing they earn below £50,000 — but they are able to furlough themselves through the Job Retention Scheme.
The Job Retention Scheme also pays 80 per cent of a workers’ PAYE income but excludes dividends, meaning company directors will only receive 80 per cent of their salaried wage and nothing for the dividends usually paid.
Mr Chamberlain said: “A lot of company directors will pay a minimal salary and take out more money in dividends. This is primarily because they do not know how much profit their company will make in the year, so they can then take out whatever they can afford in the dividend.”
He added that this structure was how people were “generally advised” to do things by their accountants and tended to be more about agility within the company than for tax purposes.
Taxman chief Jim Harra has previously argued HMRC would have “no way” of knowing which dividends were paid as a salary and which were returns on an investment in their own company or other investments they held, adding there were no plans to adjust the system.
Mr Chamberlain agreed it was the case the taxman could not easily work out where the dividend came from, but urged the Treasury to run a “pay now, claw back later” approach.
He said: “We’re asking the Treasury, is there not another way to relax the rules on this? And then even if we do overpay someone, can we not claw this back afterwards?
“You can deal with this pretty well by putting a question in the form that asks: ‘what proportion of your total dividends have come from company profits, and what from elsewhere?’ and warn people they could be penalised heavily for lying.”
Mr Chamberlain said he thought this would ensure a “pretty high level of compliance”.
Mel Stride, member of parliament for Central Devon and chairman of the Treasury select committee, said the committee would push the Treasury on the idea of a “pay now, claw back later” approach.
When asked by Mr Stride whether he would support changes to future tax arrangements where the advantages of taking dividends compared to PAYE income were reduced, Mr Chamberlain said he would like a “fundamental review” of the tax system for self employed workers.
He said: “The taxation system is far less than optimal at the moment. We have more and more people turning towards being self-employed, so let’s have a good look at this situation.
“Let’s have a proper review and get something transparent that we’re all happy with because then we can move forward. This issue of tax and self-employment has dogged the sector for years.”
Concerns were also raised about other self-employed workers who were “falling through the gaps” of the government’s support schemes.
Kate Nicholls, chief executive UK Hospitality, said the income support scheme was “very good” if you fell within the parameters, but it left people with no support except Universal Credit.
Mr Chamberlain agreed, saying the scheme had “sharp edges”. He said: “If you earn 1p over £50,000 or started working as self-employed over the past year, you get nothing.”
imogen.tew@ft.com
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