Forgotten company directors feel the strain as Sunak extends furlough scheme

Updated: 12th May 2020

On a day where the Chancellor of the Exchequer announced an extension to the inaugural Job Retention Scheme until the end of October – which will see the government continue to cover 80% of employee salaries up to a maximum of £2,500 – the frustration endures for directors of small limited companies who aren’t just falling through the cracks of government support but now starting to hit rock bottom.

“Ignored again,” says one company director on social media. “At this point I have no choice but to fold the business. Won't even have money to pay corporation tax when it's due.”

Another director articulates his dismay. “This is my reality. Over 20 years in a profitable business, hit for six in the 2008 banking crisis, let down by banks, had overdrafts converted to high interest loans and took years to recover, business is now mothballed with zero pipeline but bills coming in, employees happily furloughed receiving pay, all our supply chain are currently closed, non-payment of our invoices as accounts departments are closed, paid a self-employed contractor last week who is continuing to work whilst claiming on the self-employed income support scheme – double bubble is the phrase he used, applied for the bounceback loan but this is a loan - not a grant - and no-one knows how this will play out, and the government doesn’t seem to realise that when limited companies fold all these furloughed employees will have no job to go back to. This just hasn’t sunk in at all.”

It’s an emotive and powerful account from a company director who has had not just the rug but the floorboards pulled from under his feet by this unrelenting virus. Rishi Sunak – who has stood out like a relative rose amongst thorns in government briefings so far – is starting to wilt quite rapidly in the eyes of forgotten directors; the directors he promised he wouldn’t forget.

It would be churlish to disregard the unprecedented measures of support that Sunak and the government have provided for businesses in recent weeks; shielding an economy from an onslaught of the like we’ve never seen before. Its list of financial support schemes, grants, and deferrals makes for impressive reading – but there’s a glaring omission.

It all comes down to dividends. Sunak has previously stated – and reiterated today – that the government cannot in all confidence provide income support based on the dividend payments directors take from their limited companies because of complexities surrounding the estimation of these dividends and the potential of fraudulent activity.

It feels dismissive. For more than two million company directors, it’s bordering on contemptuous.

Gina Broadhurst, director of shutters company Just Shutters Surrey, is one of the founders of a campaign helping to lead the fight for fellow directors frozen out of government support; #ForgottenLtd.

“We don’t qualify for Universal Credit and we can’t get a small business grant as we don’t have premises – many are in the same situation. We can defer VAT and take out a loan but that’s just kicking the problem down the road. It seems a crazy decision to borrow large sums of money when we don’t have a crystal ball and don’t know how this is going to end. We can’t even provide an accurate cash flow forecast as we now have no income. Loading debt on the company is not the answer for us. We can furlough our staff but that’s about it in terms of support.”

These forgotten directors are architects, dentists, interior designers, and mechanics. They are IT consultants, hairdressers, beauty therapists, and videographers. They pay their taxes. Their VAT, PAYE, and corporation tax. Together, they employ more than seven million people. How many of those seven million – of which many are currently furloughed - will have a job to return to when a semblance of normality resumes?

Dividends are legal. It’s a common and accepted form of remuneration for directors; one that is often encouraged to them by accountants, financial advisors – and even suppliers and clients who often stipulate that a business needs to be incorporated if they’re to work together. The part-PAYE part-dividend payment plan is established and above board – particularly for businesses with irregular peak-and-trough income. For many, a fixed salary just makes no commercial sense.

But the government is digging its heels in. One can’t help but wonder how a tax and public finance system as comprehensive and labyrinthine as our own can accept without question what is paid into it but not have the requisite intelligence and infrastructure to recompense individuals in times of need.

If Sunak is serious about his intention to support businesses, then surely more needs to be done to protect these two million entrepreneurs and their businesses they’ve worked day and night to create. A monthly £572 furlough payment is on offer – but that would mean bringing all business operations to a standstill; not replying to sales enquiries, not replying about order processing, and essentially ignoring customers and suppliers until law dictates that they can reopen. What sort of business has any chance of survival if it closes down for months on end? What effect would that have on its reputation if it disregarded customers and suppliers in such a way?

“We just want a fighting chance to save our businesses,” adds Gina. “Allow furloughed owners to operate their businesses, extend grants to all small businesses and crucially extend the self-employed income support scheme to encompass limited company directors. We’re not calling for anything radical but purely for a fine-tuning of existing measures to support all businesses. We have been left behind – and time is running out.”

Begbies Traynor partner Keith Tully, who is currently providing free advice for all company directors with financial concerns, believes that the government’s failure to see the bigger picture - by supporting all limited companies - will ultimately prove to be the death knell for thousands of UK businesses.

“As someone who works with company directors in financial distress on a daily basis, spotting the signs of potential insolvency is second nature. And it’s indisputable that without income support from the government – such as parity with the self-employed income support scheme – thousands of company directors are going to go under through no fault of their own – and this will have a catastrophic impact on people’s livelihoods, jobs, and the wider economy.”

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