Directors Remuneration Support
What about Directors Remuneration Support – Pay/Dividends?
I’m sure you caught the government announcement on support to self-employed under the COVID-19 measures. There is one group left in limbo and that is micro-bsuinesses and Directors Remuneration Support.
The key points for self-employment were:
Note: If you operate through a Limited Company you are not classed as self-employed and this support would not normally be available to you (see below).
- The size of grant will be based on an average of your last three tax returns, 2017, 2018, 2019, or as many as available if you have only recently become self-employed.
- The amount is 80% of your average earnings capped at £2500 per month.
- It will be taxable as if it were income.
Who does it apply to?
The qualifying criteria are:
- You must already be registered as self employed
- Self-Employment income must be your main source of income i.e. the highest income on your tax return.
- You must have completed your 2018-19 tax return.
- Your taxable profits have to be under £50,000.
How does it work?
Applications for the grant are via a new online system being set up by HMRC for the beginning of June 2020. Funds will be backdated to cover the period that you could not work.
It is recognised that the delay in funding will be a problem and therefore you are encouraged to claim support through the Universal Tax Credit system and/or apply for a Business Interruption Loan.
What about Directors?
The group left out of course are Directors of their own companies:
- If your Limited Company employs you and you were on the payroll then its easy?
- normally under law a sole director isn’t allowed to furlough themselves as they need to be available to run the business. The only alternative would be to cease trading and implement a winding up order. But…
- HMRC announced that directors can furlough themselves through the Corona Virus Job Retention Scheme (This is where you can furlough your(self) employees on 80% pay which is reimbursed by HMRC up to £2500 per month.) .
- Directors often pay themselves a nominal PAYE salary and then top it up with dividends. For directors that operate in this manner the gross salary payment per month, and the amount you can apply for, may well be significantly limited. It is worth checking with you accountant.
- You cannot continue to trade or engage in any revenue generating activity. To be clear this will require you to raise NO invoices / receive cash in the period of furlough and you will be expected to complete a declaration that you did not complete any revenue generating work.
- HMRC have been very clear that any abuse of this will be considered fraud and offenders will be charged.
- However, you can complete training and planning activities that could set you up for the start of trading again.
- You have to be furloughed for at least 3 weeks but this can be backdated to the 1st March as long as you didn’t work in that time period.
Other options currently available to you are:
- Claim income support through Universal Tax Credits
- Defer your Tax and VAT payments until the end of the year
- Some business rate holidays and a cash grant if you have business premises – we covered this in our blog Small Business Update.
- Apply for a Business interruption loan from your bank.
- Ask for mortgage and rent holidays – both for yourself and, if applicable, your business.
- Check your business insurances, some policies are covering for business interruption – we covered this business interruption insurance and how to claim. See below.
What has happened?
The Government’s rationale appears to be that your business is just on pause and will be able to make the income up later in the year. Therefore, the business support measures put in place should suffice.
What is the logic?
Overall, a Limited Company should find it easier to apply for the Business Interruption Loan to shore up immediate cashflow issues. Demand for these loans is exceptionally high and so we advise you apply as soon as possible.
However, make sure that you choose the right lender and remember that you can apply to one after another as they have different criteria. For example, some seek personal guarantees from Directors while others do not.
20% of the loan is not guaranteed by the government so look carefully at the lenders terms to find the best solution for your business.
It is highly unlikely that you will be able to get a loan to pass funds on to yourself as dividend income. Read about our recommended approach to getting a loan.
You can find out all about business support at the governments website.
Business Interruption Insurance – Update
In our previous blog, we acknowledged that many businesses may have thought they had business interruption (BI). But, claims under business interruption clauses will be complex. Many insurers have already publicly stated that they have little exposure to coronavirus BI claims.
- the key issue is that some insurers will try to stand by the letter of their/your policy and exclude COVID-19. They could argue that it was not a notifiable disease when the policy was issued.
The government said ‘businesses should be fair in their assessment and handling of complaints involving coronavirus and follow government and regulatory guidance’.
Opinion: There maybe potential for a class action from micro-businesses. A complaint to the Financial Ombudsman Service if COVID-19 is excluded in this way – do not hold your breath! However…
The Financial Conduct Authority is considering its position to such a claim and, if its positive, may instruct the insurers action.
We’re now focussing on ‘post apocalypse planning’. We intend to start afresh at full tilt when this is over. Or, when we realise we just have to get back to work.
Authors – Mike Jenkins and Brooks & Partners.
The information provided is our understanding of the current situation. Details or opinions should not be relied upon and you must check your individual case with your accountants or lawyers. First, go to the Government Web Site Links provided in our last blog or above.