Directors income support scheme proposed
This proposal demonstrates how a viable method of support could be provided for limited company directors. These individuals have received very little support during the coronavirus pandemic.
Rebecca Seeley Harris and Glenn Collins of the ACCA have drafted the Directors’ Income Support Scheme (DISS), which is supported by ForgottenLtd, the FSB and the ACCA. The policy document has been set out to provide the government with a variety of options on how to help.
Similar to SEISS
The assumption is that DISS will be run on the same parameters as the self-employed income support scheme (SEISS). The goals have been to design a scheme that:
- Creates parity with the SEISS
- Is not open to fraud or abuse by non-trading companies
- Can use existing information and tools that HMRC already have and therefore will be simple to administer and setup.
One company, one directorship
The DISS award would be based on the trading profits of the company, which are contained in the CT600 corporation tax return. The director's remuneration would be added back into the reported trading profits on the CT600, for it to be in parity with SEISS.
Any verification of the company’s profits can be self-certified because unlike the self-employed, the director of a limited company has certain duties in law. If a director makes a false or misleading statement, then this can have very serious consequences.
The director would only be able to claim for one directorship in the entity which they have the greatest income and that income must make up over 50% of any income from other sources. The director must declare that they intend to continue to trade and are either:
- Impacted by reduced demand due to coronavirus, but are currently actively trading
- Temporarily unable to trade due to coronavirus, but were previously trading
Sam works through limited company providing sales and marketing consultancy. They are the sole worker in the company and his profits are less than £50,000 a year.
In this scenario there is one company director with a majority shareholding in the company that is owned and managed by them - they are a working director in an actively trading company. This company would be one of the 946,000 with no employees. This company can either be registered or not for VAT or PAYE. The DISS grant would be paid into the company and could be distributed either as taxable income or it could be kept in the company for cashflow purposes.
It is estimated that there would be 946,000 working directors eligible for the DISS grant. According to take-up levels for eligible companies that are based on SEISS levels, 75% would claim the average £2,900 - this would cost an estimated £2 billion.
Hilary and Jas are working directors running a small manufacturing company and employ eight staff. Last year the company made a profit of £45,000.
Here, there are one or more working company directors in the actively trading company where they are each a person with significant control (PSC). A PSC in this context is someone who has more than 25% shares in the company and more than 25% voting rights and the right to appoint or remove the majority of the Board.
This means that DISS would be limited to companies with not more than four directors. This company may be one of the 1.157 million micro-entities whose turnover is no more than £632,000 or with up to £316,000 on the balance sheet, and ten or fewer employees.
With the entity trading profits capped at the level of SEISS, it is estimated that with eligible profits, directorship and PSC, eligibility would be at 70%. With an estimate of four million directors at 70% eligibility (2.8 million) and 75% take-up levels (2.1 million), and an average claim of £2,900, the cost would be around £6 billion.
If these companies are not supported then their businesses face collapse and along with it future tax revenue. In addition, the company may become insolvent owing the deferred VAT to HMRC, the Bounce Back Loan to the banks, and have outstanding debts to other small companies. All this is even more reason why the government should help before it costs even more.
The designers of the DISS believe it is not open to fraud, any more than SEISS is and would not be too labour intensive for HMRC to set up. If the lack of a coherent system of support is why the government is not providing it, then DISS is the solution.
DISS has already received significant attention and was the subject of a live Q&A session with Claer Barrett of the Financial Times on 24 November 2020. The policy document was also sent to all MPs ahead of the Spending Review on 25 November 2020, and submitted to the Chancellor, Rishi Sunak and the Financial Secretary to the Treasury, Jesse Norman on 19 November 2020.
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Rebecca is a leading expert in ‘employment status’ including IR35, off-payroll working and the law involving independent contractors and the self-employed for the purposes of tax and employment law. Rebecca has run her own consultancy for the past 20 years covering all employment status issues such as off-payroll in the private and public...