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OVER 700,000 self employed people could miss out on coronavirus government help due to their limited company status.
New figures published today by the Office of National Statistic (ONS) reveal that 700,000 of the UK’s 5million-strong self-employed workforce are sole directors of limited companies.
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But the numbers affected could be higher still as the ONS data doesn’t include those who’ve become directors of limited companies in 2020.
It doesn’t specifically ask other types of self-employed worker if they’re also sole directors.
What’s the problem for directors of limited companies?
Directors of limited companies typically pay themselves a small salary up to the national insurance threshold and then take dividend payments from company profits.
What is the government’s help scheme for the self-employed?
SELF-EMPLOYED workers with trading profits of up to £50,000 a year can get up to £2,500 a month to help cover coronavirus losses, under a package of measures unveiled by Chancellor Rishi Sunak on March 26.
The average self-employed Brit will get £940 a month worth of help, Treasury sources estimated.
But as well as having profits of under £50,000 a year, to qualify you also need to meet the following criteria:
- have submitted your self assessment tax return for the tax year 2018 to 2019
- traded in the tax year 2019 to 2020
- are trading when you apply, or would be except for coronavirus
- intend to continue to trade in the tax year 2020 to 2021
- have lost trading profits due to coronavirus
Tax returns for the 2018/19 tax year should have been submitted by January 31, 2020 but the government has extended the deadline to April 23.
But once your tax returns are in, the actual online service to claim help isn’t available yet.
HMRC says it aims to contact you by mid May 2020 if you’re eligible, and will make payments by early June 2020.
They benefit from this as the tax on dividends is less than the income tax they’d pay on larger salaries.
But due to the coronavirus crisis, many of these smaller companies have had to stop trading as they’re not considered essential.
And they don’t qualify for the government’s self-employment income support scheme (SEISS), which will pay grants of up to £2,500 a month based on earnings when it opens in June.
Richard Churchill, a partner at accountancy firm Blick Rothenberg says the government could consider a similar scheme for company directors based on dividends paid instead of profits as this would also be detailed on self-assessment tax returns.
He said: “There is not yet enough support for these businesses. The owner-director has been left sidelined and this inequality needs to be addressed.
“We urge the government to expand the income support available for owner-directors, putting them on par with the grants available for employees and the self-employed.”
What can directors do?
While some directors may have cash in their businesses they can take out to pay themselves for now, others might not be so lucky.
Mr Churchill explains that many small businesses have low working capital and won’t have any income coming in if they’re shut.
He also points out that businesses may be keen to hold onto this cash float for when they’re able to reopen as they may need it to pay staff or suppliers, for example.
Sarah Coles, a personal finance expert at financial provider at Hargreaves Lansdown, says limited company directors can furlough themselves and put themselves onto the government Coronavirus Job Retention Scheme.
But she says they can’t work for their company while furloughed and because they typically only pay themselves a low salary the amount they’d get is likely to be small as payments are based on 80 per cent of your salary.
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Mr Churchill said: “The monetary support through the job retention scheme is likely to be minimal because owner-directors usually pay themselves a small salary and then receive the majority of their income through dividends.”
Those who are struggling could check if they’re eligible to claim Universal Credit and look at other government help to keep them going.
When it comes to keeping your business going, the government has set-up a business interruption loans scheme and delayed VAT and self-assessment tax payments.
Is anyone else missing out?
Yes. More than 151,000 newly self-employed workers will also miss out on the government’s coronavirus help scheme for the self-employed.
The problem is to qualify for the scheme you need to have submitted a tax return for the 2018/19 financial year.
Ms Coles points out that 450,000 people in their first year of business in 2018/19 may also get less cash than expected.
That’s because the government’s calculations for the scheme are based on your average profit over the past three tax years or over 2018 to 2019 if that’s the only year you’ve been trading.
Ms Coles said: “Hundreds of thousands of people will slip through the net, and will need to fall back on alternative schemes, savings or benefits to get them through the crisis.”
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