With all of the announcements that have been issued in the last 10 days, there is one group that this “new labour” Conservative Government appear to have forgotten. The man (or Woman) who takes the risks in running the Company and generates lots of VAT and corporation tax for the exchequer each year. Yes that’s right – the Company Directors.
Unfortunately being a Director is a bit of a dirty word these days. The mental image we have is of the tycoon who is raking it in left, right and centre and to be fair, there are those in the largest companies and in City businesses that are doing this. But I bet they are outnumbered by the ordinary Joe’s whose reason for being a director is “now that you are earning this much you need to reduce your risks and improve your tax by going Limited.”
This is a huge group who nearly all have a salary of between £8,600 and £12,500 and receive the remainder of their income by way of dividend. This sounds bad for many reading this, but they have to pay corporation tax to do this on the pre-dividend profit and these days, the tax advantage is much reduced with the changes in the taxation of dividends.
If the Company has no work due to COVID-19, the suggestion was that they could not furlough themselves because they were needed to do the administration. What administration if the Government has closed the pub, club, gym or restaurant? Granted, they might have had a few days to tidy up but by now they are sitting in the house waiting to hear the outcome of these rules.
I’m still unsure if they qualify but Rishi Sunak may have covered this albeit briefly in his self-employed statement this evening. So lets be clear here – what are the options?
- If they have employees, they will receive 80% – up to a maximum of £2,500 – of their PAYE wages as a grant to the business which it must pass on. But having said this, they will probably have to borrow some cash from the Bank to fund this until it comes through.
- If they were self employed they will get an average of their last 3 years income if that is more than 50% of their income up to a maximum of £2,500 per month.
- As a director on a low salary and dividend from the same business, they will get 80% of £8,600/12 if they are lucky with the dividends being ignored.
I can see a few clients throwing in the towel for who would support staff if they get no support themselves? Many of these businesses provide little more than a salary to the directors with a minimum sum retained for working capital purposes. ICI it is not.
So let’s think about it, no more season ticket at the local Premier League side, no more golf club membership, a mortgage repayment holiday which may impact upon future credit, meals at home and fewer visits to the pub, and certainly no money foreign holidays even if the borders are open.
Nobody expects to come out of this pandemic making a profit but in short, these individuals who form the engine room of our economy don’t need to be treated so harshly do they?
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The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.