COVID Relief for UK Entrepreneurs

The coronavirus has brought unparalleled challenges to businesses, and many are concerned about the effect the pandemic and subsequent lockdowns have had on entrepreneurs. The outbreak of COVID-19 has caused an unexpected disruption to businesses across the nation.

As England comes out of a national lockdown, Government Ministers are scheduled to discuss a plan to help as many as two million entrepreneurs who have been locked out of support due to COVID-19. The issue arose because many entrepreneurs rely on dividend payments as a source of income.

Because of the economic impact of COVID-19 and the flow-on effect of a national lockdown, the UK Government put in place numerous relief schemes to help those businesses affected by COVID-19. Support is available to the self-employed, including sole traders and limited company directors and other businesses in the form of loans, tax relief, and cash grants, whether a business is still open or closed.

The support available for small and medium businesses and larger businesses comes from a coronavirus business interruption loan. The Coronavirus Business Interruption Loan Scheme (BILS) was introduced by the government to help small to medium businesses across the United Kingdom to access a COVID-19 business loan. The government also provided relief for the self-employed and support for businesses affected by coronavirus restrictions. The government also put in place the coronavirus job retention scheme to allow a business to keep paying their employees, along with tax relief and business rates relief.

Applications for government-backed loans will be open until the end of January 2021. To apply, you must be a UK-based business and be adversely impacted by COVID-19. The government will partially guarantee CBILS loans of up to £5m to encourage lenders to participate in the scheme. A business interruption payment covers the first 12 months of the loan’s interest payments, along with lender-levied charges, if any.

Because various businesses are experiencing different types of challenges due to COVID, a business can apply for several types of loans.

• A term loan where the finance is repaid in regular payments over a set time.
• Overdrafts are offering a line of credit to boost short term cash flow.
• Asset finance to be used to spread the cost of any new business purchases.
• Invoice finance to cover the short-term cash flow based on what your customers owe.

While these rescue schemes are great for those in business, entrepreneurs who rely on dividends for their sole income or partial income have not received any support. While grants were given to self-employed, and employees who were backed by furloughs, individuals who relied on passive income were sidelined.

Entrepreneurs and directors have paid taxes on dividends just like everyone else; however, they haven’t received any of the income support from the government other individuals and businesses have. To date, the Treasury has been reluctant to provide support to entrepreneurs who relied on dividends for their income. The reason given by the Treasury was because it couldn’t distinguish dividends paid out while working and those received from passive investments.

According to a Treasury spokesman: “In some circumstances, people may not be able to access our [support] schemes as a result of restrictions designed to mitigate the risk of fraud. We continue to engage with stakeholders on ideas that could sufficiently address these issues.”

Government ministers are putting together a grant-based rescue plan for these entrepreneurs.

The Association of Chartered Certified Accountants, along with the Federation of Small Businesses and the campaign group ForgottenLtd, have supported a draft Director’s Income Support Scheme to support the two million entrepreneurs who rely on dividends for their income.

The proposed scheme would operate similarly to the Self-Employed Income Support Scheme (SEISS). This new scheme would provide an initial grant of 80 percent of average earnings for three months up to £7,500, estimated to cost between £2bn and £6bn.

According to accountingWEB, a director will be able to claim relief for one directorship in the entity from which they derive the highest income. That income needs to make up over 50% of the income from other sources, and the director must also declare if they intend to continue to trade. To qualify, they must be impacted by the reduced demand for their services due to the coronavirus, and they must be actively still trading, or they are unable to trade temporarily due to the coronavirus.