Coronavirus: 'We could end up with no business or savings'
Andy Shaw, 57, has built up a painting and decorating firm with his brother-in-law Jake, but has now seen work dry up owing to the coronavirus lockdown.
"We could come out of this with no business or savings, it would be absolutely devastating," he says.
Why? Because the business is a limited company and the duo are company directors who pay themselves in dividends. Like hundreds of thousands of people running their businesses the same way, they will get little or no state support.
His firm has been able to furlough, or put on state-paid leave, its two full-time members of staff to take off some of the pressure. But he and Jake will personally be eligible for much less, as they pay themselves in dividends, which the government will not cover.
"We can furlough ourselves for the small basic salaries we take, but that will only leave us with £600 a month, which doesn't cover my outgoings at all," says Andy, from Uttoxeter, Staffordshire.
By furloughing themselves, they would not be allowed to work on anything that brings in money for the business, only organisational work as a director.
"It means we won't be able to work at a time when our business is on the brink," he says.
There is a real prospect he might have to shut up shop and lay off his staff.
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Why did small businesses become limited companies?
Turning from a sole trader into a limited company has been popular in the past, with small business owners - from marketing agents to milkmen - becoming company directors and using the professional-sounding title that comes with it.
Historically, it saved on their tax bill, although that benefit has been considerably watered down in recent times.
For many, the attraction was to separate personal finances from that of the business and to protect themselves as individuals if something went wrong with a supplier or customer.
Even that benefit can be reduced if, for example, banks still require the business owner's home as collateral for a loan.
Like so many businesses, they are now facing difficulties in the light of the coronavirus restrictions, and the choice of becoming a limited company looks set to be an expensive one.
Why are they unhappy?
The government has said it will pay 80% of employed and self-employed workers' incomes, up to £2,500 a month, for three months if they are furloughed.
But it will not cover dividends, because it says there is no way of telling whether people have received them in lieu of wages or as a return on capital in their own company or an investment.
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This means people such as Andy and Jake, who pay themselves mostly in dividends, say that typically furlough pay - covering 80% of what they pay themselves as a salary - would typically give them about £585 per month, making it difficult to put food on the table after business and personal bills are paid.
Campaigners point out that most company directors are not especially wealthy, with many running small firms or operating by themselves.
"These are real, hard-working people who have built up successful businesses and paid taxes all their lives, who now find themselves facing hardship with little of the current support available for them," says Mike Cherry, national chairman of the Federation of Small Businesses.
Some 327,000 people have signed a petition calling on the government to change course. One remedy, they argue, is for dividend income to be included in the calculations for furlough, rather than only a salary.
Although the small business minister has offered some support, and Chancellor Rishi Sunak has said he is open to ideas, there is no plan from the Treasury to change its policy as yet.
"Those who do not qualify for the support schemes will be able to access a range of other measures," a Treasury spokeswoman says, including income tax referrals and mortgage holidays.
Nick Steele, 46, is one of many who say they set up as a limited company on the encouragement of one government, only now to be treated inferiorly by another.
He and his partner have run a hospitality recruitment company in Gloucestershire since 2006, but since the epidemic hit, all of their work has evaporated.
"Back then, I think they thought it was more controllable and easier to tax limited companies. Now it seems this government wants to crush us," he says.
"I have no choice but to sell personal possessions and borrow money. For the record, I can't get a government grant because I have no premises; I might be able to get a loan, but I don't want to take that risk."
He thinks the government is uninterested in supporting limited company directors because of a perception they pay less tax.
But the recruitment professional, who earns about £45,000 a year, mainly in dividends, says he pays "no more or less tax than self-employed or employed people". He also points out he is not entitled to government subsidised benefits such as statutory sick pay.
"I'm not some high net worth individual, I'm not squirrelling money away. I fill out a tax return every year, it's just that in one column I state my income from PAYE, and in another the income from dividends.
"The government's policy just doesn't stack up."
Sonali Joshi, 45, whose business provides access services to the film industry, such as subtitles and audio descriptions, says she is struggling to make ends meet.
"While we have plenty of ideas of how to reconfigure our business during this difficult time, we need investment to do this and right now we have nothing."
She says they cannot access a Coronavirus Business Interruption Loan, according to their bank, because their 2019 turnover was less than £100,000. They are also not eligible for a £10,000 government grant for small-to-medium sized enterprises that receive rates relief, as they do not have any premises.
"VAT deferral does little for us, since work tailed off weeks ago, as we work internationally and coronavirus began to impact our work much earlier this year. We also do not qualify for universal credit," she says.
"We feel let down by the government. We hear the chancellor saying, 'We are all in this together,' and that the UK is a great environment for small business, but it doesn't feel like that now, due to the lack of support."