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You may have heard of the Director’s Income Support Scheme (DISS) in recent weeks. It’s a Coronavirus support measure that’s been proposed to the government as a way of helping freelancers, contractors and small business owners who work through their own limited companies and are struggling financially due to the pandemic.
The Chancellor Rishi Sunak is said to be ‘considering’ this scheme as a way to support some of the estimated 3m small business owners who have slipped between the cracks of the government support, for nearly one year now.
In this article, we’ll run through everything you need to know about this proposal which, if introduced, could prove to be a vital financial lifeline for the UK’s smallest businesses.
It’s a package tailored to the needs of directors of limited companies, who do not qualify for the Self-Employment Income Support Scheme (SEISS) and often find themselves unable to claim enough through the Coronavirus Job Support Scheme (CJRS).
The DISS is similar in many aspects to the SEISS, which has now been in place for nearly 12 months. It was devised by tax expert, Rebecca Seeley-Harris, campaign group Forgotten Ltd, the Federation of Small Businesses (FSB) and accounting body, ACCA, who together wrote to the Treasury calling for its immediate introduction.
The DISS works in the same way that the SEISS does. By this, we mean that the grants would be taxable and based on trading profits.
How much you could claim would be based on your company’s three previous years of Corporation Tax returns. The thinking behind this is that it’s information HMRC has to hand, meaning it technically should be simple to set up and roll out quickly, and the architects of the scheme claim it is no more open to fraud than the existing SEISS.
The grant would be paid directly into your business bank account and could be withdrawn as a dividend or salary, or even kept in the business to assist with cash flow. It’s important to note that like the SEISS, any money claimed via the DISS would be taxable. It would count towards your company turnover, therefore be chargeable to corporation tax and if withdrawn personally you would need to pay Income Tax on it, in due course.
Assuming the DISS is given the green light, contractors who apply for the scheme must have experienced a reduced demand for their services as a result of the pandemic, but are still actively trading. Alternatively, if you have been forced to stop working due to the Coronavirus but were previously open, you would also be deemed eligible.
While the DISS proposal does not include a limit on earnings, it seems likely that the government would want to bring it in line with the SEISS, which is capped at £50,000.
To prevent abuse of the scheme, directors of multiple companies would only be allowed to claim for one business, in which they have the highest income. This income needs to also amount to more that half of all income earned by that director. However, in theory, this shouldn’t affect the majority of contractors, most of whom are likely to earn the majority of their money via their personal service company.
Time will tell, but the government is taking this proposal seriously, according to The Daily Mail and a number of other sources.
That the Treasury is at least paying attention could be viewed as a breakthrough moment in the campaign too. Rebecca Seeley-Harris, who drew up the plans for the DISS, provided an update recently: “The government are listening and they are actively considering this proposal.”
The need for additional support was a point also made by Joanne Harris, Technical Commercial Manager at SJD Accountancy, who told The Express recently: “It’s important to remember that economic recovery will not be immediate and the Government should consider further support as the lockdown is eased and businesses reopen.”
In the coming days and weeks, do not be surprised if the Chancellor responds to this proposal, such is the level of attention and support it has received recently. And while the initial cost of the DISS is expected to be in the region of £2bn to £6bn, the fact that the £55bn furlough scheme was recently extended until the end of April strengthens the case for tailored support for millions of limited company directors in the UK.
Appointing an accountant can save you time and stress when starting up on your own. If you would like to speak to someone about any of the above information or any other queries you may have, arrange a callback and a member of the team will be in touch.