COVID-19 and me, the small limited company owner

As the self-employed owner of a small limited company, any respect I might have had for the UK Government’s COVID-19 response was fatally undermined by Rishi Sunak in March.

In early March 2020, I attended an industry trade show (FutureBuild) at London’s EXCeL, never imagining the place would later become a centre for treating COVID-19 patients. At the time, coronavirus was just beginning to dominate the news, and, as organisations began to limit employees’ movements, it was noticeable how FutureBuild attendances began to dwindle over the three days, but we didn’t anticipate how bad it was going to become….

Nightingale Hospital, ExCEL

By Sludge G – Nightingale NHS Hospital, E16, CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=89034666

By late March, of course, the UK was heading for lockdown, and the daily press conferences made grim viewing. Every evening, we listened as Government ministers announced new constraints, while offering measures to ameliorate the worst impacts. On 20 March, Chancellor of the Exchequer Rishi Sunak took to the podium to outline how he would support businesses and pay the wages of workers unable to work. Sadly, Sunak’s measures almost completely failed to support one group: directors – like me – of small limited companies.

The plight of the small limited company owner

Conventional businesses would receive support to pay 80% of their employee salaries. But people who operated their businesses through limited companies, taking income through a mixture of PAYE and ‘dividends’, were told they could only claim help on the (often small) PAYE portion of their income if they furloughed. Asked by the CIPR, to comment on the provisions, I told them I would “be materially worse off simply because the Chancellor has decided to protect the employed and ignore the financial pressures on the self-employed.” My clients were already stopping PR and content-related activities, and – apart from chasing up some outstanding payments – my income was about to fall off a cliff. In a follow-up email to the CIPR, I ranted:

“… there is a loophole in the Chancellor’s support for self-employed workers. It relates to small limited companies like mine. I therefore fall through the safety net and will suffer a painful, if not fatal, crash in my income as a result. I have just spoken to my accountants, and my account manager says I am the fourth person he’s spoken to on this matter today. …

“IPSE seem to be congratulating themselves on achieving a good deal, but their anti-IR35 obsession appears to have blinkered them to the impacts on small businesses operating as limited companies and which genuinely work for multiple clients. From what I have read, they appear to have caved in to the Chancellor.
“Like many others, my personal income comes from a combination of payroll and from dividends paid from the profits of my business. I pay income tax and NI. My business pays corporation tax. I have worked hard for more than 10 years to keep myself afloat financially, and have scrupulously relied upon my accountants’ advice to ensure I have met all HMRC financial requirements. I opted for Limited company status for legitimate business reasons: some of my corporate clients will only work with registered companies. [And] I wanted to ensure separation between my business and my personal/family finances (in a worst case scenario, I did not want my home and the wellbeing of my family to be at risk).

CIPR campaigning

CIPR logoTo give them credit, the CIPR (along with the PRCA) has been relentless in its efforts to support its many members who are directors of small PR businesses, writing an open letter to Sunak on 27 March calling for more support for owners of small businesses. A month later, on 27 April, it joined forces with other membership bodies to call for financial support for their forgotten members who have been overlooked for Government support. And two weeks later, on 12 May, it lamented the continued lack of support for self-employed practitioners. The CIPR Independent Practitioners Group has also been agitating. There has been much discussion on the freelance PRs Facebook group. And the CIPR’s President-Elect Mandy Pearse also took up the issue, using an #AskRishi Twitter opportunity to ask Sunak: “Are you going to provide any support for self- employed Directors working via Ltd Co? Many freelance PR lost up to 70% of work but can’t furlough or UC.Sunak’s video response (below, bottom) was a bland reiteration of previous support measures and an assertion that it was too difficult to distinguish between dividend-based income paid to business owners and dividends paid to millions shareholders (Sunak is, of course, a wealthy former hedge fund manager):

As I tweeted: “basically, @RishiSunak and his chums can’t be bothered with the faff of distinguishing between small Ltd Co directors and investors receiving dividends. Brushed off again….

New research

Last week, new research by University of Edinburgh Business School in association with IPSE (the Association of Independent Professionals and the Self-Employed) – now increasingly looking beyond the IR35 issue – revealed that one in five highly skilled freelancers expect to have to close their business because of the COVID-19 crisis. The study, which surveyed over 1,400 highly skilled freelancers, found that three quarters (74%) had lost income, with an average income fall of 76%. As a result, over two thirds (69%) say they now have cashflow problems.

The overwhelming majority (91%) said they could not access the government’s Self-Employment Income Support Scheme (SEISS), mostly (73%) because they work through a limited company. Unsurprisingly, average stress levels in this group have increased by 80% because of the Coronavirus crisis.

Anonymised quotes from respondents:

1: “I have fallen through every single crack in this supposed raft of financial support measures. I cannot pay my bills. My income has gone from £4k a month to zero overnight. Despite paying taxes in this country for over 12 years, I am not eligible for any safety net from government […] There is nothing I can do to work and pay my bills.”

2: “I was made redundant in January. I went freelance until I found another job. I’m an art director. Now all work is cancelled. I have no income at all. I’m not entitled to UC as I have savings. I’m now expected to live on savings which is unfair. I have a family and we have no income at all.”

3: “Overnight [I lost] £50,000 of work. [The] TV industry disappeared. Despite being a high earner tax contributor for 20 years, when I needed help, I was excluded from the SEISS. I have now [decided] to sell my house,[…] and work no more than three months a year. I will never again earn more than £50,000 as I have been disincentivised by the government. Just incredible.”

4: “I’m genuinely frightened about my future. I’m secretly in tears most days. I feel like a failure. Why can’t I get help? Over 25 years I’ve given hundreds of thousands of pounds to the exchequer.”

Admittedly, my situation is nowhere near as dire as any of the above. However, I remain frustrated at the disproportionate impact on my business and my personal finances, and at the impact on my industry peers. Others (including some people against whom I might be competing for work) have been helped by the Government’s safety net provisions simply because they work on a self-assessment basis or are employed and have been able to furlough. By contrast, I and others have lost out. While I have done some work for a couple of new clients, it hasn’t completely filled the gap, but it has at least softened the impact on my income. But any respect I might have had for the UK Government’s COVID-19 response was fatally undermined by Rishi Sunak over two months ago, and it has never recovered.

Update (27 July 2020) – The plight of small company directors was the subject of a petition to the UK Government, and the Treasury was pressed to respond by the petitions team. Correspondence was published on 3 July. Unsurprisingly, the Treasury basically confirmed that it felt it was too difficult to help out self-employed director/workers. IPSE has condemned the response as “deeply disappointing”

Although IPSE was grateful that the government considered its proposals for supporting directors of limited companies, it did not agree with the response that it would be too “resource intensive”, saying the plight of limited companies was enough that it should commit those resources. Andy Chamberlain, Director of Policy at IPSE (the Association of Independent Professionals and the Self-Employed), said:

“It is deeply disappointing that the government has not seen fit to do more in response to the Treasury Select Committee report.

“Although we appreciate the government ‘carefully considering’ our proposal to support directors of limited companies with a pay now, claw back later policy, we do not think its response is enough. The response claims this approach would be too ‘resource intensive’ and that including the newly self-employed in SEISS would involve too much of a risk of ‘fraudulent activity’.

“To this we would say that limited company freelancers, the newly self-employed and other excluded groups have suffered enough that the government should commit those resources and take those risks to protect these people.

“Our research and news report after news report have shown that self-employed people have been hit particularly hard by the lockdown, seeing their incomes fall off a cliff overnight. One study we conducted showed three quarters of freelancers saw a drop in their income by an average of 76 per cent. Without financial support, this has been devastating to individuals and families across the UK.

“The self-employed are a vital part of the workforce and the economy: government must be ready to do more to protect all parts of this diverse and essential community.”

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