Despite introducing financial support packages that were designed to include as many people as possible, there were always going to be segments of society that missed out on Government support during the Covid pandemic. One major group that were initially overlooked were the self-employed, requiring Chancellor Rishi Sunak to have to introduce the Self-employed incomes support scheme (SEISS). But now a coalition of business groups representing SME Directors and business owners, have been granted the opportunity to speak to the Treasury about the concept of a Directors Income Support Scheme.
It is estimated that up to two million business owners have been locked out of coronavirus support as a result of the way they draw income from their companies. With Furlough open to Directors but based on PAYE, many feel they were unable to take advantage of the Coronavirus Job Retention Scheme (CJRS). This is because the majority of their income is made up of dividends, with only a small notional value coming via payroll. This method of drawing income is well established in the UK and allows Directors to flex their drawings based on business performance and also draw income in a manner that is personally tax efficient.
CJRS would have seen Directors and business owners only taking 80% of their PAYE income which is typically set around the Primary Threshold. If their business was not trading due to lockdown restrictions or depleted demand, then their ability to draw further funds through dividends would have been impacted, leaving them seriously out of pocket. As a result, many have had to struggle on, on a basic income. For some this has put the future of their business at risk.
The Directors Income Support Scheme, which has been designed by the Federation of Small Businesses, the Association of Chartered Certified Accountants and campaign group Forgotten Ltd, would be a grant based on the trading profits of small, actively trading companies. Acknowledging that Directors have set their income up in this manner and paid their taxes just like everyone else but may have missed out on other income support schemes, the Treasury have agreed to meet with the coalition and discuss the concept in more detail.