This is an open letter I’ve just posted to the Chancellor to try and redress the gaping hole that entrepreneurs and self-employed people find themselves in.
The actions that you and the government have taken to protect the incomes of 95% of the UK population during the Coronavirus pandemic are to be applauded. You have acted swiftly, decisively, and for the most part, fairly. On behalf of the country, you have my thanks.
However, in your announcements there are two groups of people who have been left high and dry:
- Self-employed people whose average profits are more than £50,000. Why should these people be treated differently from salaried workers? How is it fair that a self-employed person earning £50,001 receives nothing, whereas a furloughed employee on a salary of £50,001 continues to receive the £2,500 cap under the Coronavirus Job Protection Scheme (CJPS)?
- Entrepreneurs and SME business owners who pay themselves a low salary and top up with dividends. Where they are also directors of their companies, it seems impossible for them to claim under the CJPS, since to furlough directors would imply that there was nobody running the company and that would be a breach of the Companies Act 2006.
I noted your comment in yesterday’s announcement about the differing tax treatment for people with differing employment/self-employed/business owner status. It reminded me of my first rotation into the tax department at Price Waterhouse, when we learned of the Duke of Westminster’s case  A.C.1; 19TC490. Lord Tomlin famously ruled: “Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow tax-payers may be of his ingenuity, he cannot be compelled to pay an increased tax.”
Entrepreneurs, in addition to being an engine that provides a significant number of jobs in the economy, are following the law by paying themselves a low salary and dividend. This is no fancy scheme designed to take advantage of a tax loophole, but a clearly set out and long-accepted tax planning strategy.
If you wish to change the tax law, Chancellor, then change it. Simplify it. That is within your bailiwick. However, to wantonly punish the very people who are providing so many jobs that the government is so keen to protect, is equivalent to cutting off your nose to spite your face.
I urge you to re-visit the above points. Remove the profits cap for the self-employed; they are still subject to the £2,500 cap on earnings. Remove the limits that restrict SME business owners from receiving their fair share of this vital support to protect our economy and our country at this time of unprecedented national and global emergency. You can take the steps to ensure that everyone has the opportunity to receive 80% of their earnings up to the £2,500 cap. Please do so. We are all in this together.
David B Horne