Why more help is needed for director / shareholders of small businesses

Owner managers of limited companies take at least the same, if not more, business risk as self employed individuals. These owners of small companies also make up a large percentage of working UK taxpayers. Yet, as individuals, they have not been helped by the Government’s strategy to support UK taxpayers through the COVID-19 crisis. Quite often they obtain finance for their businesses through personal guarantees, secured on their homes, and risk losing everything if the business fails. Throughout the previous recessions, many have worked long hours and had sleepless nights keeping work coming in and paying employees.

Director/shareholders who pay themselves a salary and dividends through their own limited companies are technically considered employees of the business. But because the income from their company has been made up mainly of dividend payments, with only a small salary, business owners have seen a significant drop in their personal income. And currently, there is no Government support for the loss of dividend income. They contribute massively to the UK economy by paying corporation tax, VAT and employers’ national insurance on their employees’ wages. Not to mention the income tax on their salary and dividend income. Additionally, they are helping shore up the pensions deficit by making employer contributions to pensions schemes.

Yet as individuals, director/shareholders who draw dividends have been left high and dry through this business crisis. They fail to meet the criteria to get the same government help as furloughed employees, who have been able to receive 80% of their usual pay from their employer. Nor do they qualify for the grant to self-employed individuals, who have been able to claim for 80% of their income based on profits from previous years.

Whilst the Government has failed to support small business owners, international companies have benefitted from the UK Government’s support strategy. Last week, The Times reported that the largest recipient of the Bank of England’s COVID-19 emergency funding scheme is German chemicals giant BASF. The company employs less than 1000 people in Britain.

In recent years, many financial institutions have come to recognise that dividends from an individual’s trading company form part of their basic income. It is time that the Government acknowledges this and provides specific support for these individuals, who continue to support the UK economy.

Paul Scully, the Under Secretary of State in the Department of Business, Energy and Industrial Strategy and Minister for London is due to meet at an oral evidence session of the UK Parliament on 11 June.

Today there are over 77,000 petitioners who have expressed the view that action needs to be taken by the Government to support small business owners. If you have not already done so, please click on this link and sign this petition to help UK business owners:

https://petition.parliament.uk/petitions/310515.

If 100,000 signatures are received, this will be considered for debate in Parliament.