Keep you eyes wide open when entering into any financial agreement for help

Firstly we would like to say this article is only to make you aware of the potential pitfalls currently faced by business people during the current crisis. If you are struggling financially then of course you should take the assistance available as we all still have bills to pay and families to feed but what are the future consequences of accepting the assistance now?

Importantly there will be changes to the tax system once the country has recovered from the current uncertainty. The Chancellor announced in his update on self-employed financial support the he believed the tax system was not equal for all and that if we were to all receive equal support it was only right and fair that we all pay equal taxes in the future. He would have a valid point if the support being offered was equal and fair but with so may small businesses missing out on any support is the new system of support fair? The support given has and will cost billions over the next few months and this will need to be recovered in the future and we hope this is done fairly and that small businesses who have received no support are not penalised in the future with whatever new taxation system is introduced.


If you are a self-employed business person there were financial measures introduced this week to help if your business profits are reducing or stopped altogether. This support will not be available until June at the earliest and the people affected are being told to support the shortfall with either a business interruption loan or Universal Tax Credits.

Self-Employment Income Support Scheme

The Government have announced this week the self-employment income support scheme. The scheme will ensure businesses faced with reduced profits will have their income topped up to limit the financial impact. Full details of how the scheme will work are not currently released and we will keep you updated as we find out more details. In order for HMRC to determine the level of the payments to self-employed people we are expecting to have to produce accounts and some form of return at the time of the claim and this will create additional administration burdens and potential costs. If a business does claim the support and later in the year has increased profits, say from work currently being delayed, we would expect the annual profits to later be compared to previous years and the grant could then have to be repaid. Because details of this are unknown we would recommend you treat any grant as a loan until it’s confirmed it can’t be later reclaimed by HMRC.

Business Interruption Loan

We have been looking into the business interruption loans offered by the High Street Banks. From our investigations these loans will be interest free for 12 months but the banks appear to be lending based on their current lending requirements. The Government has agreed to provide lenders with a guarantee of 80% of the loan. The problem comes when you apply for the loan. Firstly as the lending is based on the current lending requirements of the bank, some banks are still asking for personal guarantees. This will put your house at risk even though the Government has agreed to guarantee the majority of the loan. The second issue is with regards to how much you can borrow. A small business will be limited on the maximum amount of borrowing and our investigations have show the loan amounts will not be sufficient. Finally this is only a loan. As it is a loan it will need to be repaid and with many small businesses struggling to survive before this crisis, the added financial pressure of loan repayments will surely to too much for the business to bear once the crisis is over.

Universal Tax Credits

If you have little or no income Universal Tax Credits are available to you. These have been made even easier to access by the Government reducing the minimum income floor. Currently we are being advised that a claim will take at least 5 weeks to process but advanced payments will be made available, this is if you can get through to speak to someone and expect a very long wait on the telephone before speaking to someone! If you do claim Universal Tax Credits please be aware that this will be based on your income at the time. It is imperative you keep them informed of any changes in your income as this will change your entitlement. The largest issue we are aware of is the grant a self-employed person will receive in June (hopefully) will be in respect of your income from April. As a result once the grant is received your income for April to June will be different to the income making up the basis of your claim. We can find no confirmation of what will happen at this point but logic tells us the Universal Tax Credit claim will then have to be recalculated and probably repaid. As soon as we can get accurate details of this we will of course update you but for now our advice is to treat it as a loan to be repaid in the future and ensure you keep all details of what you have received and details of any income details used to make the claim.

Owner Managed Limited Companies

Owner managed limited companies currently have little financial support available other than the business interruption loans mentioned above and the job retention scheme. HMRC have confirmed “if you’re a director of your own company and paid through PAYE you may be able to get support using the Job Retention Scheme” at the bottom of their notes on the self-employment income support scheme. Many small company directors are paid with a mixture of salary and dividends. It is only the salary element that would qualify for support and it is important to remember this support is only available if the employee (in this case the director) has been furloughed. It is impotant to note that to be furloughed the director can not be doing any work (including reduced hours). HMRC have indicated that it will have a system in place to audit any claims made.


Many of our small company clients have indicated they think the system is unfair because self-employed people are receiving support for lost profits but dividends are not covered in the job retention scheme. In our opinion HMRC are correct in their treatment as self-employed profits and salary are both earned income whereas dividends are investment income and as such completely different on so many levels. That said, we do not agree with the current support measures from HMRC and they are not fair, especially towards small companies. What we would like to see is support to protect profits of small companies the same as for self-employed people. If this were to be introduced the company directors could then distribute the grant as a dividend or retain it in the business as they choose fit and would eliminate any variances in the timing of dividend payments being used to manipulate the system. As the small company structure has always been a thorn in the side of HMRC due to the associated tax savings we do not expect this to be introduced as the Chancellor made it clear he is looking to equalise taxes (and in our opinion penalise those who have used the system to their advantage).

As we mentioned at the start this article is only to make you aware of the potential pitfalls currently faced by business people during the current crisis. If you are struggling financially then of course you should take the assistance available. In normal circumstances businesses would take the appropriate measures to ensure they are properly informed. As these measures are being announced quickly to support the economy and UK businesses not all of the details are available and we will endeavour to keep you informed of changes as quickly as we can.

Every business is unique. If you would like any advice with regards to your business and the effects the virus are having on your trade then please contact Rob. We are not looking to profit from the crisis and Rob has agreed to discuss your business and concerns for free with no obligation to engage us as your accountants in the future. We would just like to help where we can. Stay safe, stay well and stay home where you can.

This article is published for information only. It provides only an overview and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the above can be accepted by the author or the firm.