Small company directors feel "despondent and left behind"

By:

Date: 21 April 2020

bearded engineer in eyeglasses and formal wear looking at blueprint while working in the office

The Institute of Directors (IoD) has written to MPs calling for action to support directors of small firms who have been left out of current coronavirus support measures.

The IoD has described the Coronavirus Job Retention Scheme as "not adequate" for company directors, because it "fails to recognise" how they administer their remuneration and "provides inadequate scope" for them to fulfil statutory duties while they are furloughed.

In his letter, IoD director general Jonathan Geldart, said: "While small company directors are a vital part of our economy, many are not eligible for the support currently on offer."

The Association of Independent Professionals and the Self-Employed (IPSE) has said that the limited company contractors it has spoken to are "utterly despondent and feel completely left behind".

According to the IoD, small businesses with between zero and nine employees account for 96% of all enterprises, one-third of jobs and one-fifth of turnover across the private sector.

Many business leaders in this group rely on a combination of wages and company dividends for their income. As their earnings can vary widely, a fixed salary is often unsuitable. Yet, no government scheme currently covers company dividend earnings, leaving many directors with little income support.

The IoD is calling for a change to the rules so that directors can claim 80% of their monthly income including company dividends, up to the £2,500 per month cap, subject to tax, to put them on par with support available for employees and the self-employed.

The business body also says that restrictions on furloughed directors' activities must be re-examined "as a matter of priority". Roger Barker, IoD head of corporate governance, said: "It's hard to believe the government has thought through the implications for small companies with only one or two directors.

"If the intention is to help keep businesses afloat during the lockdown, directors must be able to continue working while furloughed, to try and get their company off life support. This would be no different from the rules for the self-employed. On an even more basic level, it's unworkable for a company to have no-one at the wheel in any respect whatsoever."

There have been reports that small business minister Paul Scully is considering new ways of supporting limited company contractors.

Alasdair Hutchison, IPSE policy development manager, said: "More support is urgently need 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 69% of limited company contractors do not feel government measures are enough to sustain them."

IPSE has welcomed the news that Paul Scully is looking at ways to plug the gap for company directors. It said: "One way to do this would be to include dividend income in the government's Job Retention Scheme … This would enable many limited company contractors who pay themselves through dividends to make full use of the scheme."

Last week, 250 accountancy firms as well as the business banking app Countingup wrote to the government voicing similar concerns. Representing over 70,000 small businesses, the letter said that "more urgency is needed to award grants" and that "many businesses face collapse today".

Tim Fouracre, Countingup ceo, said, "We welcome the government support that's being made available to sole traders and limited companies. We simply appeal for it to be provided equitably across the range of small businesses represented in the UK."

Written by Rachel Miller.

What does the * mean?

If a link has a * this means it is an affiliate link. To find out more, see our FAQs.