The 2m limited company directors with very little lockdown support

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Small business owners have been forced to raid personal savings to prop up their cash-starved companies – 100 days after lockdown began. 

Back in March, Chancellor Rishi Sunak unveiled a package worth more than £300 billion to support British businesses and workers through the virus crisis.

But directors of the UK’s two million limited companies have fallen through the net. 

Some have not received a penny in support. These businesses are often run by one or two directors who work from home and do not employ staff. 

They include freelancers, mobile hairdressers and consultants. 

But since they are registered as limited companies, they are not eligible for the self-employment support scheme. 

And because company dividends make up the majority of 700,000 company directors’ incomes, if they try to furlough themselves on 80 per cent of salary up to £2,500 a month, the money often comes nowhere close to their usual income.

Only income paid through HMRC’s Pay As You Earn system is considered. For many, this reflects just a small part of their salaries, while some are paid entirely in dividends.

However, at least limited company directors can do this. A chunk of the self-employed who are sole traders and pay income tax and NI on all of their earnings but have had trading profits of £50,000-plus per year are completely excluded from any help.

Many director incomes have sustained drastic cuts — pushing some into dire straits and fearing for their business’s survival.

Roger Barker, head of corporate governance at the trade body Institute of Directors, says: ‘It’s deeply disappointing that 100 days into this crisis, gaps in support haven’t been filled. For the small company directors … it’s been a very difficult few months.’

Kate Solomons set up her events company Kreative Group 11 years ago, after leaving her job as a primary school teacher.

The mother-of-two’s company usually turns over around £150,000 a year, but the outbreak has cut her takings to zero after every single booking for this year was cancelled.

Kate, 38, furloughed herself and her one staff member – but as the majority of her £2,500 monthly income was dividends, she now earns just £570.

She has had to use her savings to pay most of her £5,000 monthly business outgoings.

And while Kate has an office, she has missed out on a cash grant of up to £25,000.

This is because her landlord pays business rates to the council, so she couldn’t claim. 

Her husband Daniel Freakley, also 38, has suffered similar problems as an electrician and limited company director.

For months Kate was reluctant to take out a loan while the future was so uncertain, but she eventually applied for £45,000 through the BounceBack Loan scheme last week.

Kate, who is part of the ForgottenLtd campaign calling for more help from government, says: ‘The Chancellor introduced the furlough scheme to protect jobs, but I provide work to more than 200 freelancers and that will all be gone if my business goes bust.’

Meanwhile, director Joe Johal fears redundancies at his aircraft parts courier firm AOG Couriers. The business is 12 years old, and Joe, 58, achieved a £1 million turnover last year, a record high for the company — which employs ten others.

But grounded flights have caused his takings to plummet by 75 pc and he has had to furlough three staff.

Joe received a Bounce Back loan of £50,000 in May, but it was spent in just six weeks.

And he has recently secured a £10,000 grant through the Local Authority Discretionary Grants Fund.

But his own £4,000 monthly income has dropped to just £900 and he has paused his £3,000 pension payments.

The father-of-two, who lives near Heathrow, says directors like him have been ‘pushed to the back of the queue’ when it comes to financial support. 

He adds: ‘I’m not sure what is going to happen. I have good staff with their own families, rent and mortgages to pay, but if things don’t improve by next month, I may have to start considering redundancies.’

Last week the Corporate Insolvency and Governance Act 2020 was introduced — giving limited companies extra time to file accounts and more breathing space in the insolvency process.

But while campaigners welcome the Act, they warn it only ‘papers over the cracks’ in government support and does not replace the collapsing incomes of many directors.

Part of the difficulty in accepting dividend income, is it’s hard to work out what is paid as a salary and what is a return on an investment.

But MPs in the Treasury committee are now calling for the Government to pay out on dividend income now and investigate claims later — with penalties for dishonesty.

The committee’s chairman Mel Stride says: ‘The Prime Minister has said the Government will do everything it can to get the economy moving.’

His ‘fair deal’ must include doing the right thing by these individuals so they can play their part in rebuilding the economy,’ Mr Stride added. 

It followed calls for a ‘pay now, claw back later’ scheme from groups including the Association of Independent Professionals and the Self-Employed (IPSE).

Alasdair Hutchison, IPSE’s policy development manager, says: ‘The government must think again about this group and get them the financial support they so badly need to put them on par with others.’

A Treasury spokesperson says it is offering a range of support, from income tax deferrals and mortgage holidays to Bounce Back loans.

f.parker@dailymail.co.uk