New proposal for limited company director support: how does it work?
- 12 Jan 2021
- Alasdair Hutchison
In one of our recent blogs, we highlighted the fact that the campaign for support for limited company directors was continuing with renewed ideas and urgency. While the Self-Employment Income Support Scheme (SEISS) continues to help many sole traders (although as we have pointed out numerous times there are many who are nonetheless ineligible) and employees continue to receive support via the furlough scheme, company directors remain caught in the gap in between the schemes. More than nine months on since the first lockdown in March, they have still received no targeted support.
In a recent Westminster Hall debate, several MPs highlighted the plight of company directors in their constituencies. At the end of the discussion, we were pleased to hear the Treasury minister John Glen MP state that government “reiterate our willingness to continue to work with groups, including IPSE […], that bring forward proposals” that could address these gaps.
Since March, IPSE has been advocating numerous practical solutions to fix these gaps in support. We suggested extending the SEISS to the newly self-employed by letting them file an early tax return and introducing a taper above the £50,000 salary threshold scheme so that those earning above that amount were not left out altogether. For company directors, our ‘pay now, claw back later’ proposal was adopted by the Treasury Select Committee but rejected by the Chancellor on the basis it would be open to fraud and too “resource-intensive” to implement, a position we have always disagreed with.
However, there is some optimism that government may be considering a new proposal – the Directors Income Support Scheme (DISS).
What is the Directors Income Support Scheme?
DISS is the brainchild of tax and legal expert Rebecca Seeley Harris. Rebecca, who will be joining IPSE’s webinar on Wednesday to discuss the scheme in detail, is an old friend of IPSE’s and formerly worked at the Office of Tax Simplification. So how would it work?
The scheme would be based on trading profits as evidenced by CT600 company corporation tax returns. To make the scheme equivalent of the trading profits of a self-employed person using the SEISS, on which the DISS is modelled, the director's remuneration would be added back into the reported trading profits on the CT600. Both figures are available from records kept by HMRC.
Who would DISS be open to?
DISS would be open to individuals who were an executive director and a Person of Significant Control (PSCs). They could be a sole director/shareholder, one of several working directors or PSCs in a micro-entity (although DISS would be limited to companies with not more than four directors) or an actively trading small company.
How would it be paid?
The grant would be paid directly into the company and, similar to the SEISS, form part of its taxable profits. The company would need to be actively trading and not an investment or property company. As with other proposals for company director support he scheme would require a manual check of some kind – in this case, it would be verified either by an accountant or self-certified by the director of the company, which is protected from fraud by the director’s duties. Again, like SEISS, individuals would have to declare upon claiming that their business had seen reduced demand or been unable to trade as a result of coronavirus.
While there are one or two further details, that is the DISS in a nutshell.
What's IPSE's view?
While IPSE do have some questions about the scheme - not least that DISS would appear to mirror one of the major flaws with SEISS, the £50,000 profit cap – the proposal strikes us as largely sensible. It has the benefit of directly addressing some of HMRC’s practical concerns, such as the risk of fraud, that the government has cited as justifications for not providing support.
Our Policy Director Andy Chamberlain recently quizzed Rebecca Seeley Harris on the DISS in one of our webinars. You can listen back to that discussion here.
Will the government provide support for company directors?
The idea has gained support from organisations across the board and has been referenced in recent parliamentary debates and select committee inquiries. The government's next Budget has been slated for 3 March 2021. While we think support for company directors should be announced ASAP, this would provide a key opportunity to unveil a scheme - particularly if it was backdated. Whether government eventually takes up the solution remains to be seen but is clear that the voice of directors is being heard increasingly loudly by government.
You can find out more about the proposal in Wednesday’s IPSE webinar, where the DISS author Rebecca Seely-Harris will be speaking with our Policy Director Andy Chamberlain. Sign up here.
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Policy Development Manager