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Forgotten. Forgotten. THE

T I M E I S R U N N I N G OUT! By Neil Archibald

While there is no doubt that the government has reacted to provide support to businesses and employees during the pandemic, a large group of affected individuals often feted as the backbone of the country’s economy have been totally ignored. Limited company directors who take their income principally or all in dividends are one of the largest groups that have not benefitted financially from any support extended by the powers that be, and many feel time will run out for them if they don’t get support soon!

Many company directors are paid by way of taking dividends from their business rather than or as well as a minimal salary. It appears however, that this method of remuneration being more complex than the traditional PAYE one in terms of records not being available to refer to when administering furlough schemes, has seen this group excluded from compensation schemes offered to individuals paid through the traditional PAYE method.

This affected group have banded together to lobby government to alter its approach and who operate under a number of banners including ‘forgottenltd.com’. Among supporting organisations, the Institute of Directors Scotland (IoDS) who, as well as lobbying for more support for company-owner directors, are also pushing for more recognition and help for small firms that can’t obtain loans, those that don’t own their own premises and the self-employed who fall outside existing criteria to receive financial support.

Malcolm Cannon, National Director of the IoD in Scotland, said: “With no clear end in sight to the pandemic’s grip on the Scottish and indeed economies the world over, I would implore those looking after the nation’s purse strings to reconsider the monumental impact if directors cannot pay themselves and so are forced to close or reduce their operations.”

Despite representations being made at devolved and national level, suggestions made to provide desperately required support have been largely ignored, according to Cannon despite, in his view, the Scottish government having done as well as they could have up until now, given current circumstances.

Compounding the situation is the fact that directors who are paid through dividends have to contend with the misperception, at times, that because they run and operate a business, they must be wealthy. While some may be more fortunate than others, many small business directors have invested heavily in their companies from personal savings and in some cases are having to supplement operating costs from their own pockets. Stan McKinlay is one of those individuals affected. The 63-year-old Edinburgh-based businessman has run various hospitality outfits for over 40 years and has had to sit on the sidelines for weeks watching his business and personal finances suffer both as a result of not being able to operate as normal and having to supplement his workers’ wages while servicing his own expenses from savings. He commented on the situation: “It seems that because the government can’t or won’t develop a system to provide support to the likes of myself and others because we are paid in a different way to the majority of the working population, we have to suffer accordingly”.

While McKinlay has managed to reopen his business with the lifting of lockdown provisions with no need to reduce staffing levels, this hasn’t been the case across other sectors of the Scottish economy. In a recent IoD Policy Voice survey, as many as 1 in 5 members said they hadn’t been able to access any support which has resulted in job losses and reduced output.

39% of IoD members also report as part of a recent, separate survey that they see coronavirus posing a serious threat to their business while a worrying 66% see the economy as a whole being threatened.

Given the fact that these issues will cause a distraction to those managing and leading businesses, the duplicating factor that personal income is also affected will inevitably cause some to take their eye off the ball, according to one company director who runs a publishing and events business, at a time when they can ill afford to do so.

He said, on condition of anonymity: “Our income is visible through clear paper trails provided by our accountant on a monthly basis for all to see so why HMRC can’t look at developing a similar compensatory system to put in place for the large majority of workers is a mystery.”

This view is supported by Cannon, who added: “Our members are exploring every avenue available to survive, but there are still steps that can and should be explored by our national and devolved governments to relieve some of this incredible pressure being felt by our members”.

It’s an oddity that a government that encourages entrepreneurialism hasn’t found a way to deal with this anomaly despite all the ongoing lobbying including by the Federation of Small Businesses and given the time that has elapsed since the introduction of the original furlough scheme.

As the IoD pleaded in their submissions to government, ‘extending support to company owner-directors including consultants and freelancers who take their income as dividends should see themselves being put on a par with support available for employees and the self-employed while also needing to clarify the duties directors can carry out while furloughed.’

It’s this further anomaly that is also causing operational problems for directors, some of whom take part of their income via PAYE simply to utilise their tax allowance. On paper, they are eligible for financial support through the furlough scheme but only for this element of their income but it’s not viable in most cases to make a claim. This is because those furloughed aren’t allowed to perform any aspect of their work and given their unique position in organisations, not having a company director operating at full tilt during such uncertain economic times may seal a company’s fate.

Campaigners are urging the Government to make grants available in contrast to loans with many directors citing increased levels of anxiety due to the prospect of paying a loan back at a later date.

Perhaps the voices of those affected need to be heard more by government to reinforce the impact of what is happening and to put the matter into context. In the Our members are exploring every avenue available to survive, but there are still steps that can and should be explored by our national and devolved governments to relieve some of this incredible pressure being felt by our members

words of the director speaking anonymously: “Over my 30-year career I’ve paid over 5 times more into the tax system as a director than an employee. I think it’s fair to say I am worth more to the economy as a company director than as a PAYE-paid employee and that’s not taking into account the jobs I’ve created and the benefits those have brought.”

Simple words that could be viewed as self-serving but reinforced in great measure by the efforts of the IoD representing more than 700,000 company directors across the UK in their submissions.

The saying that statistics never lie is never truer than in this scenario. The businesses owned by Scottish company directors who find themselves in this quandary represents 42% of total employment across the country and 36 per cent of turnover, according to a recent Scottish Government Small Business Survey so the impact of not creating some kind of immediate support mechanism should be clear for all to see.

Cannon reflects: “The fight for these directors at the highest levels of government will continue as we believe more could and should be done to support them. By developing and deploying a simple scheme to guarantee these impacted directors do not fall between the cracks, we may be able to save even more jobs.”

Malcolm Cannon