More than 324,000 people have signed a petition calling for dividends to be treated as earnings for the purpose of U.K government support for owner-managed businesses dealing with the economic impact of the coronavirus outbreak.
The petition at Change.org also calls for people who started a business after April 5, 2019, to be eligible for the self-employment income support scheme (SEISS).
Guidance on the coronavirus job retention scheme (CJRS), updated on April 9, indicates that salaried company directors may be furloughed and receive support through the scheme, subject to conditions regarding the performance of statutory duties.
“I’m struggling to understand why dividends [from] a business that the self-employed person owns, or substantially owns, should be excluded” from the CJRS, Mel Stride, chair of the House of Commons Treasury Committee, told HM Revenue & Customs Chief Executive Jim Harra during a virtual hearing on April 8.
Harra pointed out that someone who runs a business through a company would not be self-employed and would not be eligible for the SEISS. “They will, however, qualify for the furlough scheme in respect of the wage that they are paid by the company,” he said.
Harra said he was aware that some owner-managers of companies pay themselves “a relatively small wage and then top that up with dividends.” Those dividends would not qualify for the CJRS grant, he added.
Government ‘Continues to Listen’
HMRC has no way of identifying whether dividends are received in lieu of wages or as a return of capital, Harra explained. “That’s been a difficult issue to work through and we’ve not been able, in the time scale, to come up with a design that would enable us to top up the furlough payment for those people beyond 80 percent of their wages,” he said.
Stride asked whether discussions with HM Treasury on the issue were continuing. “It’s been decided that that is the policy . . . [but] the government continues to listen to people and knows what the issue is. But at this stage there are no plans to do anything further,” Harra replied.
The Institute of Chartered Accountants in England and Wales had told the committee in written evidence that members had been “raising this issue in droves.” Owner-managers craved a package “just as generous as that for the self-employed,” it suggested.
The two Treasury schemes intended to support employees and the self-employed fail to cover thousands of members of BECTU, a union representing staff, contract, and freelance workers in the media and entertainment industries, according to an April 12 blog post by Philippa Childs, the head of BECTU. “The government’s response to this crisis has been unprecedented and its ambition has to be applauded, but we know that it has exposed a lack of knowledge about how some parts of the economy operate in practice,” she said.
“Across the creative industries there are people who regularly work [Pay As You Earn] contracts as their main source of income but were not in a contract on February 28 and did not start another contract after that date. Our latest survey shows around half of all those who work in this way in the film and TV sector are in this predicament. With no employer able to furlough them, it is essential that the government steps in,” Childs added.
BBC News quoted a Treasury spokesperson as saying on April 13 that “those who do not qualify for the support schemes will be able to access a range of other measures — including an increase in the universal credit allowance, income tax deferrals, £1 billion more support for renters, and access to three-month mortgage holidays.”
Tax Body Highlights Tax Return Deadline
Access to the SEISS will be limited to people who were self-employed in the tax years 2018-2019 and 2019-2020 and are currently self-employed, but have lost profits because of COVID-19, according to the government’s guidance published on March 26. Those who have not yet filed a tax return for 2018-2019 despite the January 31 filing deadline will be given until April 23 to do so.
“We urge self-employed people to act now and complete any outstanding 2018-2019 tax returns so they do not miss out on the cash grant offered through the SEISS, if they meet the qualifying conditions,” Victoria Todd, head of the Chartered Institute of Taxation’s Low Incomes Tax Reform Group, said in an April 9 release. “For those who were self-employed in 2018-2019 but still need to register with HMRC, the closeness of the April 23 deadline means they should register for self-assessment immediately. If possible, this should be done online rather than telephoning HMRC or sending the registration by post.”
The CIOT was waiting to hear from HMRC whether it will be possible for someone who started a business in 2019-2020 to file a tax return for that year by April 23 and receive support under the SEISS, according to an April 8 update.