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Limited company contractors to receive COVID-19 income support


Small business minister Paul Scully is reported to be seeking ways to provide a similar level of income support to the nation’s two million business owners that pay themselves through dividends as has currently been extended to employees and self-employed individuals.

The Coronavirus Job Retention Scheme (CJRS) pays “furloughed” employees eighty per cent of their regular wages, whilst under the Self-Employment Income Support Scheme (SEISS) self-employed workers can apply for a taxable grant of eighty per cent of their trading profits.  Both schemes are capped at £2,500 a month.

However, small business owners that pay themselves dividends are only covered for the salary they receive from their company – if any – under the CJRS.  Dividend payments are not covered under either scheme and small business owners are not currently eligible under the SEISS, which is only available to individuals registered as self-employed.

This has left owner-directors “falling through the cracks” and “frightened and bewildered”: in many cases the coronavirus lockdown has left their business unable to trade and the only income support available from the government has been negligible.

Research by trade body the Association of Independent Professionals and the Self Employed (IPSE) showed that forty-five per cent of freelancers fear they will not be able to afford basic costs like rent and bills despite government support.  It also showed that sixty-nine per cent of limited company contractors believe the government is not doing enough to sustain them through the coronavirus crisis.

In a webinar on Wednesday, Mr Scully said: “At the moment the tax scheme doesn’t differentiate between dividends as part of that pay and dividends earned as investment income.” But he wanted “to be able to work up a scheme to present to the chancellor” with ideas from business.

Rishi Sunak has said that “all ideas are welcome” when it comes to improvements to the government’s business support measures, but Mr Scully’s proposal is viewed with scepticism at the Treasury.

“There are no plans to change the arrangements,” one Treasury official said.  Some in government are also concerned about “public fairness issues”, given that running a salary/dividend split is often considered to be a form of tax avoidance.

Mel Stride, the chair of the Treasury Select Committee, is also understood to be urging the chancellor to help those not covered by the existing schemes.

Mr Scully said he had paid himself in dividends when running a business from home with a partner.

“We did exactly the same thing, not to reduce our tax bill, but because we did not want to set up a payroll system, which was relatively cumbersome when there’s only two of you. So I totally understand the frustration,” he said.

The Federation of Small Business is also lobbying for owner-directors to receive additional support.

Mike Cherry, national chair, said: “These are real, hard-working people who have built up successful businesses and paid taxes all their lives, who now find themselves facing hardship with little of the current support available for them.

“They include hair salon owners, childcare providers, dentists, pet-sitters, people across the creative industries.”

Alasdair Hutchison from IPSE, said: “More support is urgently needed for self-employed people working through limited companies.  The limited company contractors we have spoken to are utterly despondent and feel completely left behind. Our research, too, shows that sixty-nine per cent of limited company contractors do not feel Government measures are enough to sustain them.

“The Chancellor’s Self-Employment Income Support Scheme was very generous to the people it covered, but there were several holes in the package – particularly limited companies and people who have only recently become self-employed.

“It is very welcome that Mr Scully is looking at ways to plug the gap for company directors.  One way to do this would be to include dividend income in the government’s Job Retention Scheme, which company directors are eligible for but only for the small portion of their earnings that comes from PAYE.  This would enable many limited company contractors who pay themselves through dividends to make full use of the scheme.

“Otherwise, we suggest the small business Minister considers schemes based on either a temporary tax break or targeted grants for limited company contractors in need.  Either way, we urge him and the Chancellor to act quickly to extend their support package to this vital and varied section of the workforce.”

17th April 2020.