Directors' Income Support Scheme (DISS): explainer for contractors

Drafted by me, but with active involvement from ForgottenLtd, the FSB and the ACCA, the Directors’ Income Support Scheme (DISS) is currently being considered by HM Treasury, writes Rebecca Seeley Harris, founder of ReLegal Consulting.

What is the DISS?

The scheme was drawn up to help the government provide financial support for the many limited company directors who have so far lacked such support during the ongoing coronavirus pandemic which, at the time of writing, has led to a third national lockdown in England.

Auspiciously, DISS has already received significant attention in the press, and the policy document outlining the scheme has also received widespread support from many MPs, plus representative groups including IPSE, the CBI and Make UK.

Dividends are out; that's the whole point of this scheme

Unlike previous proposals to give limited company directors some income support when the economy is closed due to coronavirus, DISS is not centred on dividends. This is a fundamental point to understanding the scheme.

Other schemes tabled to the Treasury have failed because dividends cannot be measured as an income or easily differentiated between income and investment.

So, by basing DISS on trading profits it brings it in line with the already existing scheme for the self-employed – SEISS, the Self-Employed Income Support Scheme.

We've given the government choices

The policy document has been set out in such a way as to provide the government with a variety of options on how to help. The obvious starting place is to base it on the same parameters as SEISS. Although there are limitations to the SEISS scheme, it is the only support scheme not prohibiting work that is currently active. 

So what is DISS in detail and how would it operate? The scheme is based on the trading profits of the company, which are contained in the CT600 corporation tax return.

Any verification can be self-certified because unlike the self-employed, the director of a limited company has certain duties in law. If a director makes a false or misleading statement, then this can have very serious consequences.

How to claim under DISS

The director would only be able to claim for one directorship in the entity which they have the greatest income, and that income must make up over 50% of any income from other sources. The director must declare that they intend to continue to trade and either, are:

  • currently actively trading but, are impacted by reduced demand due to coronavirus; or
  • were previously trading but, are temporarily unable to do so due to coronavirus.

The objectives I worked with were to design a scheme:

  • That creates parity with the SEISS scheme
  • That is not open to fraud or abuse by non-trading companies
  • That can use existing information and tools that HMRC already have and therefore will be simple to administer and setup.

Scenario 1

Ian works through a limited company providing IT consultancy services. He is the sole worker in the company and his profits are less than £50,000 a year.

In this scenario there is one company director with a majority shareholding in the company that is owned and managed by Ian – he is a working director in an actively trading company. This company would be one of the 946,000 with no employees (according to BEIS stats). 

Ian’s company can either be registered or unregistered for VAT or PAYE. 

The DISS grant would be paid into the company and could be distributed either as taxable income or it could be kept in the company for cashflow purposes. 

It is estimated that there would be 946,000 working directors eligible for the DISS grant. According to take-up levels for eligible companies that are based on SEISS levels (see the relevant government stats here), 75% would claim the average £2,900. This would cost an estimated £2 billion.

Scenario 2

Pippa and Jan are working directors running a small software company and employ 8 staff. Last year the company made a profit of £45,000.

In this second scenario, there are one or more company directors who are working directors in the actively trading company where they are a Person with Significant Control (PwSC).  A PwSC is someone who has more than 25% shares in the company and more than 25% voting rights and the right to appoint or remove the majority of the board. This means that DISS would be limited to companies with not more than 4 directors. 

Final thoughts (includes hope)

The entity trading profits may be capped at the level of SEISS.

Note, this is not recommended by DISS (in the proposal which HM Treasury has received and is considering), but it may be what the government chooses to do if it adopts the policy.

Assuming adoption, DISS may apply to only the 946,000 non-employing limited companies or to the 2m actively trading small companies. Or the government may opt for the ‘micro-entity’ bracket -- which is restricted to £632,000 in turnover and 10 employees or less.

Positively, the scheme has not been ruled out by HMT because it is still being considered so we – alongside droves of company directors up and down the country -- are hopeful of hearing back very soon. 

Friday 8th Jan 2021
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Written by Rebecca Seeley Harris

Rebecca is a leading expert in ‘employment status’ and IR35 and the law involving independent contractors and the self-employed for the purposes of tax and employment law. Rebecca has run her own consultancy for the past 20 years covering all employment status issues such as off-payroll in the private and public sector, otherwise known as IR35, s.44 and any issues affecting the self-employed and personal service companies.
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