03 April 2020
Options available for micro businesses affected by Covid-19
If you are the only owner and employee of a limited company in which your business operates, you may be exploring what financial support is available from the government to help you deal with the impact of COVID-19.
So far, the government has announced the following schemes available to help those whose earnings have been impacted:
- The Coronavirus Job Retention Scheme (CJRS) encourages employers to keep staff on payroll instead of terminating their employment, by providing a grant which covers up to the lower of 80% of the relevant employee’s monthly wage or £2,500; and
- The Self-Employed Income Support Scheme (SEISS) which supports self-employed workers.
Are directors of limited companies eligible for SEISS?
In brief, the answer is ‘no’. The SEISS is only applicable to self-employed sole traders. This does not include directors of a company, who are, technically, employees of their own company.
Are directors of limited companies eligible for the CJRS?
Yes, as long as the director takes a salary through a PAYE scheme on or before 19 March 2020.
This is an issue for a majority of sole directors (in particular those who are a sole director of an SME or a micro-entity) as for income tax purposes, most sole directors of limited companies take a lower salary, with the majority of their income arriving from dividends issued by the company.
This means that the salary element of their income is likely to be relatively small, which may not be suitable for the sole director’s purposes once reduced to 80%.
Using the CJRS would also mean that the sole director would have to furlough itself. This in effect would require the business to shut down its operations completely, as the sole director would be unable to work.
Can I pay my dividends payments as salary through PAYE instead?
HMRC have set out that only employees in respect of whom you made an RTI (real time information) PAYE notification on or before 19 March will be covered by the CJRS. In addition, your reference pay is calculated using PAYE pay from prior to the introduction from the scheme – you cannot effectively give yourself a pay rise to get a greater benefit from the CJRS. In any event, you should also take advice from an accountant/tax expert before making any decisions as there is a possibility that this could be fraudulent.
The financial support available for Sole Directors
Unfortunately, there doesn’t seem to be a single solution available to sole directors. However, there are other options available depending on the company's circumstances (listed below) and for which further details are provided on https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses#support-for-businesses-through-deferring-vat-payments.
These include (but are not limited to):
- Deferred VAT and income payments;
- Statutory Sick Pay relief package for SMEs, which may be useful should a sole director fall sick with the virus;
- Business rates holidays;
- Small Business Grant Scheme;
- Support for retail, hospitality and leisure businesses that pay business rates;
- Coronavirus Business Interruption Loan Scheme (several qualifications must be met for this option, details of which are included in the link above); and
- HMRC Time To Pay Scheme.