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Allie Renison is Head of Trade and EU Policy at the Institute of Directors.

Despair. I’ve seen it before from businesses, and even lost sleep over not having all the answers for firms genuinely worried about how to manage their future.

This time it’s different – for better and for worse.

People are far less politically divided over the Coronavirus as an issue (no matter what Twitter says), which should make the policy response less fraught in theory.

In practice, there is far less room for error or manoeuvre, and with a vastly bigger net to worry about.

Every day that passes with businesses running on just fresh air and good will – through no fault of their own – is another day that puts a dent in the effectiveness of the Treasury relief schemes announced so far – and another drag on our eventual economic recovery. 

Were it just a case of waiting for a date to access the Chancellor’s package of measures announced so far, many small businesses could make ends meet for the next few weeks.

The trouble is, for all the generous spirit behind those measures, it’s the SME community that is still most at risk – from our high-growth startup ecosystem to the tour operator bringing in just enough profit to keep his family going for the year.

Huge scores of people are falling through the eligibility gaps – gaps which risk turning into caverns, often because of public and political lack of understanding as to how small business works.

It’s hardly surprising that much of this misunderstanding is over who pays what tax, one of the most contentious and complex areas of economic policy that provokes such heat (and rarely much light) in political debate.

You could almost forgive the Treasury for not wanting to go there, and on a point of dividend payments no less.

When large business owners – sometimes paying themselves big bonuses – have been plastered across the news for shamelessly trying to wiggle their staff into “essential worker” categories, no one wants to talk about including dividends.

When banks seem slow to lend to normally viable SMEs through the Government’s own loan scheme but have mulled over huge profit rewards to shareholders, no one wants to talk about including dividends.

But that’s not what good policymaking is about. It asks questions to strip away the heat and make sure those who genuinely need help aren’t being missed or overlooked – and that’s what the IoD has been seeking to do over the past weeks.

And what comes through my inbox day and night are emails full of despair from the thousands of small business founders who – after being told “we’re all in this together” – find themselves shut out of any relief whatsoever. Simply because they choose to take a low salary and make up the rest with dividend payments – often on accountants’ advice, to ensure staff and overheads are all paid out first, or even because when starting out trading they aren’t sure what they will make in their first year.

These aren’t the fatcats you love to hate. They’ve often gone from being self-employed to company directors to take people on as they grow, usually paying a bigger overall range of taxes in the process.

They’re the owner-managers of SMEs, the company directors who email me asking whether I think their carefully managed plan to ensure social distancing is responsible enough for their workers. Because these are the ones who often know and care most about their employees.

And contrary to what many believe, there are no longer significant tax advantages in conducting business through a service company in comparison with being a self-employed sole trader. Many of the tax benefits that used to exist have been eroded by changes to government policy over the last five to 10 years. 

The type of people affected may be the young events entrepreneur with an award-winning business, turned down for a loan based on opaque viability criteria that should never apply in this unprecedented crisis, his bank refusing to discuss it any further; the lawyers and HR directors who finally branched out on their own from the Big Four, and the mother who realised after having children she could actually create a comfortable e-commerce business from her kitchen after all. Oftentimes, they don’t even have commercial premises, so don’t qualify for any of the rate reliefs and cash grants extended to those who do.

So why are limited company directors being left out in the cold? After all, there’s far more of them than just a few falling through the cracks – the IFS recently estimated at least two million people running their own company who would be eligible for the Chancellor’s Job Retention Scheme.

But because they only take a small salary, their income from dividend payments can’t be included, so they face ending up on little more than the equivalent of sick pay, while bills keep mounting and customers cut off by the lockdown.

This isn’t about dividends generated by smart stock picks that you hear about from the banks and millionaires, but rather basic income protection for small business owners to keep them afloat so there’s a business to come back at the end of this tunnel. 

Naturally this presents a challenge for HMRC in terms of differentiation, though it is not an insurmountable one. The clarification from the Government that directors could still get on to its furlough scheme for any PAYE salary was a welcome move to at least give them a foothold to start out with. 

But the role of a director comes with a very broad range of statutory duties. Many of these entrepreneurs and small employers are genuinely worried about the conflict that could arise between furloughing themselves (not working) and continuing to carry out those duties. Liability issues are as relevant for directors on the JRS as their dividend payments are. 

Those running SMEs have little other resource, particularly as so many are failing to access the loan scheme in huge numbers, a notable difference to their counterparts in places like Switzerland where eligibility and application process is far more simple and straight forward.

This is likely because their governments have underwritten 100 per cent of the loans as opposed to 80 per cent, while even in the US the federal response includes loan/debt forgiveness if business holds on to their employees.

The Swiss also may provide wider food for thought on freelancers and the self-employed, who are being paid 80 per cent of their daily salary based on an average across six to 12 months. CBILS may still yet be able to help many companies, especially if wider private lenders can be accredited to the scheme, but it relies on adapting to survive itself.

Ultimately, company directors in the UK are in a unique position, caught between schemes for the employed and self-employed.

Indeed, it may be that extending the self-employed scheme to limited company directors turns out to be the simplest route to go down once dividend differentiation can be reconciled, or that a wholly separate niche is required.

But as with so many other parts of the Government’s policy response, fundamental signalling is crucial.

A public message to the two million, with many high growth start-ups among them, that support is coming – that they haven’t been missed or overlooked – is crucial for business confidence.

We are all learning, and making changes to our response to this crisis along the way. It is surely reasonable for government to do the same.

28 comments for: Allie Renison: SMEs are most at risk from economic collapse. They need to know that help is coming.

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