Lack of dividends income support a ‘blatant snub’ for self-employed

UK self-employed and micro-businesses are being left behind as the government support through the Coronavirus Job Retention Scheme (CJRS) doesn’t account for dividends in calculating how much can be claimed.

That’s according to CEO and founder of accountancy firm Crunch, Darren Fell, who is urging the government to rethink its position.

“Here again in crisis, it just feels like a blatant snub again to the micro businesses and the small businesses in the UK,” he says.

Prime Minister Boris Johnson was asked about why dividends were not included in the CJRS calculations and cited the “fantastic complexity” that such a system would create but Fell refutes that suggestion.

“They know how they paid themselves. It’s not unfair, it is the mechanism out there. They’ve [the government] chosen not to include the dividends but it’s not difficult to provide that data and prove it,” Fell says.

The decision will affect every small business owner in the UK as it is the standard method for small business owners to pay themselves, he says. Payment through dividends provides much greater flexibility for firms as they can decide pay based on profits while paying themselves a very small base salary.

“The very mechanism that every small business or every business owner uses is a method of paying themselves in dividends. So, you naturally pay yourself a small salary and a high dividend. Why wouldn’t you? Every director does that unless that they’re being really silly.”

Elsewhere, the Association of Chartered Certified Accountants (ACCA) and the Corporate Finance Network’s (CFN) Weekly SME Health Tracker reveals the ongoing struggles SMEs face as the economic knock-on effects of coronavirus hit small business.

There continues to be problems for SMEs trying to access finance, with only 37 percent of applications for the Coronavirus Business Interruption Loan Scheme (CBILS) approved. Similarly, 40 percent of Bounce Back Loan Scheme recipients believe it will not be enough to meet their liabilities over the next 12 months. Instead, the report says that tax deferments are being used as a stop gap, with over two-thirds (68 percent) of SMEs deferring.

“Tax deferrals, cashflow, late payments and incoming future liabilities are all part of a growing uncertain picture for SMEs,” said Claire Bennison, head of ACCA UK, in a statement.

“SMEs need ongoing backing to handle what is essentially a credit crunch storm coming – they need clarity and support for the future,” she added.

The Weekly SME Health Tracker also paints a worrying picture for small business owners’ mental health. It reported last week that 89 percent of practitioners report their SME clients are feeling more stressed, 78 percent have a worse mental health, and 11 percent are now feeling suicidal.

Fell says that Crunch recognise a number of their clients must be affected by the lack of social interaction and financial worries caused by the pandemic, but the role of the accountant is to do whatever they can to provide support to their clients.

“Anything that we can do to help decipher stuff for them, we’ve done it,” he says. “If they need any help with any other loan submissions then they only have to ask.”