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Entrepreneurs 'falling through cracks' of UK coronavirus wage schemes

Tom Belger
Finance and policy reporter
Chancellor Rishi Sunak announced unprecedented income support measures for workers who would otherwise face the axe and the self-employed. (Matt Dunham/PA Wire)

Entrepreneurs risk “falling through the cracks” of UK government schemes to safeguard incomes through the coronavirus crisis, a business group has warned.

Chancellor Rishi Sunak has rolled out two unprecedented income support packages in recent weeks, with one for employees and another for the self-employed.

Employees at risk of redundancy over the coronavirus’ impact can be ‘furloughed,’ with the government set to refund employers for 80% of their wages while off work. Meanwhile the self-employed can also seek government support to cover 80% of their average profits over the past three years, though both schemes include caps on payouts.

But the Institute of Directors (IoD) is alarmed that many company directors in sectors where work has dried up appear to have been overlooked in the measures.

Read more: Coronavirus ‘will wipe 15% off GDP’ in next quarter

The IoD says many small company directors often pay themselves via dividends, taking no or only limited salaries via pay-as-you-earn (PAYE).

Yet dividend payments are not eligible for the government’s pay support scheme. Officials may be unwilling to endorse pay structures often used to minimise tax, or to foot the bill for the incomes of business leaders.

It means some company chiefs face a long spell without an income, while any workers they furlough can receive 80% of their ordinary salaries. Other directors can only apply for 80% of the small proportion of their income they receive through their salary, and are barred from doing much of their work if they do so.

Meanwhile sole traders who operate as limited companies are not eligible for the government’s support scheme for the self-employed. Some freelancers and consultants are required to set themselves up as companies by clients, and many warn they face financial hardship.

Read more: Low-paid female workers’ jobs leave them most at risk from COVID-19

The IoD argues company directors should be entitled to similar support to employees or staff.

“Those that provide a clear paper trail should be able to make a furlough claim of 80% of their monthly income subject to tax, up to a £2,500 per month cap, ​to put them on par with support available for employees and the self-employed,” it said in a press release on Tuesday.

Edwin Morgan, director of policy at the IoD, praised the government’s business support measures so far but urged it to support entrepreneurs.

In a situation as frantic and fast-moving as this, inevitably some gaps have opened up, but these need to be acted upon to prevent people and businesses falling through the cracks,” he said.

Read more: UK unemployment ‘worst since 2015’ as jobs boom stalls

The lack of support for self-employed company directors has also come under fire from the Association of Independent Professionals and the Self-employed (IPSE).

Its policy director Andy Chamberlain claimed in a blogpost last week the government’s message was that “if you are a contractor, you’re on your own.”

He said many had seen work collapse overnight, with clients slashing work with little notice as the coronavirus has battered the economy.

He wrote: “We are certainly disappointed that many of our members and other contractors who operate via a limited company will miss out on the level of support available to other self-employed workers.”

The Treasury has been approached for comment.

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