{"id":41273,"date":"2020-04-17T11:00:53","date_gmt":"2020-04-17T10:00:53","guid":{"rendered":"http:\/\/www.enterpriseresearch.ac.uk\/?p=41273"},"modified":"2022-05-12T12:23:21","modified_gmt":"2022-05-12T11:23:21","slug":"left-in-the-cold-how-company-directors-are-excluded-from-the-governments-coronavirus-support-schemes","status":"publish","type":"post","link":"https:\/\/www.enterpriseresearch.ac.uk\/left-in-the-cold-how-company-directors-are-excluded-from-the-governments-coronavirus-support-schemes\/","title":{"rendered":"Left in the cold: How company directors are excluded from the Government\u2019s coronavirus support schemes"},"content":{"rendered":"
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The Government\u2019s various coronavirus support schemes aim to provide a safety net for both employees and the self-employed during the suddenly-imposed \u2018lockdown\u2019 period now affecting the UK economy.<\/p>\n

But while the headline measures announced by Chancellor Rishi Sunak over recent weeks \u2013 including the Coronavirus Job Retention Scheme (JRS) aimed at employees, Coronavirus Business Interruption Loans Scheme (CBILS), small business grants and Self-Employed Income Support Scheme (SEISS) for self-employed people \u2013 have gone some way to providing theoretical reassurance to businesses and workers, significant gaps remain.<\/p>\n

The Enterprise Research Centre and Manchester Metropolitan University have highlighted how at least 750,000 self-employed people<\/a> don\u2019t qualify for SEISS support. These are mainly sole traders who didn\u2019t file a Self-Assessment tax return for the 2018-19 tax year on which earnings are calculated, or for whom self-employment has only recently become their main source of income.<\/p>\n

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The director\u2019s dilemma<\/strong><\/h4>\n

Recent weeks have also seen a clamour from other types of business owner whose firm structure precludes them from notional protection of incomes up to 80% of monthly earnings up to \u00a32,500.<\/p>\n

The most significant category is sole directors of limited companies. Many self-employed people have been encouraged by the tax system and UK enterprise culture to run their businesses as limited companies. In normal times, this structure gives them flexibility to pay themselves through a mixture of PAYE salary (since directors are technically \u2018employees\u2019 of their own firms) and dividends (as shareholders in the business) to take account of fluctuating monthly sales while ensuring they build up sufficient employment years for the state pension. It also protects their personal assets through the principle of limited liability and, by creating a separate legal entity for the business independent of the individuals themselves, can give the larger firms that contract their services greater confidence when hiring them.<\/p>\n

But now, company directors find themselves in a double-bind. Technically, as employees of their own companies, they aren\u2019t eligible for support under the SEISS scheme. So their only option for assistance is the JRS. However, dividend income isn\u2019t covered by the JRS scheme.<\/p>\n

This means that, while directors can choose to \u2018furlough\u2019 themselves if their work has dried up because of COVID-19, they can only receive 80% of their monthly PAYE earnings as income support from the Government. Typically, this represents a small proportion of their total earnings. The prospect of furloughing themselves \u2013 which means they can\u2019t undertake their normal work duties \u2013 may also be impractical for most sole directors.<\/p>\n

Notably, the SEISS does<\/strong> allow the self-employed to keep trading and, while this may mean that the 80% payment over-compensates those who sustain significant trade, it is surely in the interests of business survival and economic recovery that policies that support as much economic activity as possible.<\/p>\n

All of this means that, for sole directors \u2013 as well as for the hundreds of thousands of self-employed not covered by the SEISS scheme \u2013 their only viable option is to fall back on Universal Credit (UC) or Jobseekers\u2019 Allowance (JSA). Most will face significant financial difficulties, as outlined here<\/a>.<\/p>\n

Universal Credit is means-tested, based on family income. So directors will have reduced or no eligibility if a partner earns or if the family has savings. The Job Retention Scheme and SEISS are not means tested against a partner’s income or savings and so do not assume that the shock of COVID-19 should be absorbed by families first, and the state second.<\/p>\n

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\u201cWe\u2019ve fallen through the cracks\u201d<\/strong><\/h4>\n\n