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Jonathan Geldart: How forgotten small company directors can be helped

10 Apr 2020

start up

This article was first published on the Telegraph website, here.

IoD Director General Jonathan Geldart calls for support for company directors and start-ups so far left out from the Government's coronavirus support package.

The coronavirus outbreak has raised immense challenges for businesses, but it has also seen ingenuity come to the fore.

Already, firms have won plaudits for repurposing production lines, quickly coming to the aid of stretched health services. The Government, too, has shown an ability to respond with speed, and the unprecedented job retention scheme has doubtless prevented many redundancies.

It would be churlish to ignore the support that has been provided for businesses, but there is a gap when it comes to those for whom ingenuity is second nature: entrepreneurs.

Directors of many of the country’s smallest companies have unfortunately been falling through the cracks of the Government’s otherwise substantial measures.

These people don’t fit the “fat cat” image that the word director sometimes conjures up. They often aren’t earning a spectacular amount, despite putting everything into their work. They might employ a few people, maybe one, or maybe none. In some cases, they have put a lifetime of effort into the business – whether that’s a small architects’ practice, a professional photography outfit, or an interior designer.

Many of these directors take only the bare minimum in PAYE salary; as their income is entirely dependent on the business they drum up, and can vary widely from year to year, a fixed salary doesn’t make sense. Instead, they take income as dividends, only when they make a profit and don’t have to retain funds in the business.

Unfortunately, the Government’s job retention scheme doesn’t cover company dividends. This is leaving people that have to furlough themselves feeling high and dry, and needs to change.

This isn’t a small gap. There are over two million people running their own company, and whilst it’s difficult to calculate exactly how many receive income primarily through dividends, one petition calling for support already boasts over three hundred thousand signatories.

So far, some have argued that arranging a system for these people would be too difficult. One hurdle is that dividend income from your own company and dividend income from investments are clumped together in self-assessment tax forms – and the Treasury doesn’t want to subsidise income from a share portfolio. Difficult, however, doesn’t mean insurmountable – a paper trail does exist.

Directors must already evidence dividends in company accounts submitted to Companies House and with HMRC in their personal tax returns, while many will have done so in board minutes or dividend vouchers. They may also reference dividend payments in distributions from their business bank accounts. It’s not beyond HMRC to use this to deduce eligibility.

Even if this scheme takes longer to administer, it would be still be better late than never for those missing out. HMRC might also cut back on its workload by adopting the principle of a “pay first, check later” approach, with the prospect of big penalties for those retrospectively caught abusing the system. Heavy enforcement in return for timely action is a bargain many will be willing to strike with the Government.

Meanwhile, some have suggested that because dividend income can be tax-efficient, these people don’t deserve support. If this is a major stumbling block (leaving aside the fact that much of the tax advantage has been whittled away over recent years), then HMRC can simply apply tax to the support offered to account for this.

This objection shouldn’t be getting in the way of providing support, just as providing support won’t get in the way of the subsequent, wider debate around tax reform.

At the same time, many entrepreneurs, particularly in the start-up community, have found themselves unable to access the broader support measures for businesses. The Government’s coronavirus loan scheme has, despite good intentions from all involved, had a somewhat rocky start, and young, high-growth companies have found it particularly frustrating.

Meanwhile, expanding cash grants to firms in co-working spaces would cut through to the founder community. Boosting the reliefs available through enterprise investment schemes and venture capital trusts, and injecting cash into venture capital funds could also help some start-ups access funding.

We now know for certain that the response to coronavirus will be more of a marathon than a sprint. Despite the energetic efforts already shown by Government, there is distance still left to run. To keep us going through the lockdown, and to speed up the recovery when it comes, we’re going to need to keep the UK’s entrepreneurial spirit alive and kicking.

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Euan Holmes, Press Officer

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