The Plight of the Sole Director during Covid-19…

In the wake of the coronavirus epidemic the government announced unprecedented measures to keep the economy afloat. These are largely rooted in Keynesian and new monetary theory policies. The purpose is to keep money in the businesses that supply our economy with the goods and services demanded by consumers.

First, we had money set aside by the exchequer to the tune of £300 billion for loans that would relive larger to medium sized businesses and the SMEs that needed such relief. Then most importantly the exchequer, in mustering the resources of the treasury and HMRC, announced a programme to pay directly the salaries of 80% of the furloughed workforce.

Immediately questions around the details of the policy sprang forth, in the House of Commons MPs including Dr Stephen Farry raised the idea of a universal basic income (UBI) that would temporarily inject into the bank accounts of citizens so that the demand side of the economy would not collapse.

Rather than this the government has pursued a policy so intricate and delicate in detail that it would make our own mandarins at Stormont blush. Presently to avail of the furlough scheme, a company must notify their employees of their temporary redundancy and that employee if forbidden from working for the employer.

So far, the intention of the policy seems quite clear, keep businesses afloat and steer employers towards opting for furlough so that as little of the population of possible is required to go to work. But there are of course ‘cracks’ like there are within any qualified government scheme.

One crack I want to draw the attention of readers towards is the plight of the sole company director. The term ‘director’ in this sense is merely the Companies Act 2006 definition as enforced by companies’ house. Any entrepreneur who pursues the path of establishing a limited company must decide upon who will be the director or directors of that entity.

This is distinct from sole traders, they were last to be included in government relief when it was announced finally that they would have their own scheme. However, a start-up entrepreneur who is registered with HMRC through their directorship is not a sole trader and therefore not entitled to relief under this scheme.

What is even more difficult for those caught in this nether zone is that there is the potential to apply for relief under the furlough programme. This would be calculated based off their taxable income, not their previous dividend payments which many small company directors rely upon for living expenses. For a sole director to furlough themselves and not work it renders their whole business defunct, trapping them completely into the nether zone and making it impossible for them to transition the business back into profitability.

The generosity shown by government towards sole traders under significant media and parliamentary pressure has squeezed company directors in the middle. Many now lament taking the step to establish a company and wish they had of registered as self-employed which would be a significant cost to our economy and legal order when this crisis abates.

When a company entity is established it has what the courts call a ‘legal personality’ meaning entrepreneurs can take risks with company assets without putting their own home or savings at risk. It is part of the lifeblood of what makes our economy so innovative, capitalism requires risk taking and if these SME directors stop taking these risks it could damage us all.

I will finish by returning to the UBI point, although imperfect, the savings that such a programme would entail through a reduced bureaucracy could be immense. It would seal the cracks in scenarios such as that set out above and allow our citizens some economic dignity during a crisis that we have not seen for 100 years.

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