Chancellor of the Exchequer Rishi Sunak has done a great deal to support the U.K. economy but “hard edges and delivery challenges” remain, House of Commons Treasury Committee Chair Mel Stride said.
HM Revenue & Customs launched the coronavirus job retention scheme (CJRS) on April 20. By midnight 185,000 firms had submitted claims worth £1.5 billion in total, and 1.3 million employees had been reported as furloughed, HMRC tweeted on April 21.
HMRC has provided detailed guidance on the CJRS, including a step-by-step guide for employers. The scheme will be extended to the end of June, Sunak announced on April 17.
“While the government has undoubtedly taken bold action at pace, the Treasury Committee continues to receive evidence of the hard edges and delivery challenges that need addressing, such as further help for those receiving self-employment related dividends and the slow pace at which emergency loans are reaching businesses,” Stride said in an April 21 release.
The committee will press the government to consider extending the CJRS to dividends received by company directors, Stride indicated during an evidence session earlier on April 21.
Sunak reiterated in an April 20 letter to the committee that the government cannot guarantee to protect every business and every household. “However, our planned economic response aims to be as comprehensive as possible whilst delivering support as quickly as we can to those who need it,” he said.
Sunak outlined several support measures announced “at unprecedented speed” since March 20. “We have shown that we will take action quickly to iron out problems,” he said, adding that the government is keeping all policies under review.
Job Retention Scheme
The committee had summarized for Sunak the evidence submitted to an inquiry into the economic impact of the coronavirus. People who work via personal service companies “draw down some of their income” in dividends and “make up a large portion of the creative workforce because employers have often insisted that workers are set up in this manner,” the committee said. It had received “calls for combined salary and dividends to be counted as income” for the purpose of the CJRS.
Sunak’s response did not mention dividends specifically. But HM Revenue & Customs Chief Executive Jim Harra had told the committee on April 8 that HMRC has no way of identifying whether dividends received by owner-managers of companies are received in lieu of wages or as a return of capital.
During the April 21 hearing Andy Chamberlain, director of policy at the Association of Independent Professionals and the Self-Employed (IPSE), distinguished between dividends received from an owner-manager’s own company and those received from other shareholdings.
“A lot of company directors will pay themselves a fairly minimal salary and take out more money in dividends. The reason why they do that is because they don’t know how much profit the company is going to make in the year. . . . It is how people are advised to do things, very often, by their accountant,” Chamberlain said.
“It’s a little bit of a myth that this is to do with tax, because in recent years tax on dividends has increased, so people do pay tax on their dividends as well,” Chamberlain said. Dividends are not subject to National Insurance contributions.
IPSE has asked HM Treasury to “relax the rules” so that dividends received by owner-managers are treated as income eligible for the 80 percent grant provisionally, with HMRC having the power to claw back any overpayment, Chamberlain added.
The committee will pursue the “pay now, claw back later” idea with Treasury, Stride said. But he asked Chamberlain whether he would “have a problem” if the tax advantages of taking dividends were reduced in the future.
IPSE has been asking for a fundamental review of the taxation of self-employment, including limited company directors, Chamberlain said, adding that “we think the tax system for all self-employed people is far less than optimal at the moment.”
“While small company directors are a vital part of our economy, many are not eligible for the support currently on offer. This cohort contains some of our most creative, innovative, and scalable companies, and their survival will be essential if we are to amplify our economic recovery,” Jonathan Geldart, director general of the Institute of Directors, said in an April 17 letter to members of Parliament.
“Many business leaders in this group rely on a combination of wages and company dividends for their income. As their earnings depend on the business they drum up, it can vary widely, and so a fixed salary is often unsuitable. Yet no government scheme currently covers company dividend earnings, leaving many directors with little income support,” Geldart said. “Directors should be able to claim 80 percent of their monthly income subject to tax up to the £2,500 per month cap, including their company dividend earnings, to put them on par with support for employees and the self-employed.”
Heather Self, corporate tax partner at Blick Rothenberg, noted in a Tax Journal article on April 17 that her firm had proposed an extension of the CJRS to dividends received in 2018-2019 in the case of “active personal trading companies.”
Self-Employment Income Support Scheme
“People who are newly self-employed are not eligible for support” under the self-employment income support scheme (SEISS), the committee noted. Witnesses had suggested widening eligibility by allowing a tax return for 2019-2020 to be filed and included in the calculations of income.
“Unfortunately, HMRC would not be able to distinguish genuine self-employed individuals who started trading in 2019-2020 from fake applications by fraudsters and organized criminal gangs seeking to exploit the SEISS. Those who are not eligible for the SEISS may still be eligible for other support,” Sunak replied.
The option to defer payment of VAT is open to all 2.3 million VAT-registered businesses, and the self-employed and other taxpayers within self-assessment may defer income tax payments due in July 2020 until January 2021, Sunak noted.
Finance Bill Rescheduled
MPs were scheduled to debate the finance bill at its second reading in the House of Commons on April 22. Leader of the House Jacob Rees-Mogg announced on April 21 that the second reading has now been rescheduled for April 27.