Do I really have no option but a bank loan....?

EmmieAwards

Hi guys 

I started my business in Nov 2019, I worked as a sole employee director paying myself through dividends and a small weekly salary. I was advised by my accountant this was the best thing to do. Since May I lost my sole contract and have been burning money to stay afloat. From what I can see, my situation completely misses out on the furlough options, meaning I have no option but to take a loan, is this correct?

Jeremy535897

If you had no work, you could have furloughed yourself, but that had to be done by 10 June, and you would only have got furlough based on your small salary. Your accountant was right at the time (November 2019) regarding taking dividends rather than salary, as they could not have predicted the pandemic, let alone the terms of the CJRS.

If you have no work, what are you burning money on to stay afloat? Getting a Bounce Back loan for a sole director company without a year's turnover is tricky, even if your company has a business bank account with a lender that does BBLs. 30 November is the cut off date. Talk to the bank straight away.

Thrugelmir

What are your longer term plans?  Remain in business or return to being an employee. 

EmmieAwards

Thanks guys

i wasn’t eligible for furlough as I was never registered under PAYE.

the plan was to stay in business but after spending money on my weekly salary for six months, and expenses related trying to get new business, I’m running out of money.

So to clarify only support available for me is a loan from the bank?

Jeremy535897

EmmieAwards said:

Thanks guys

i wasn’t eligible for furlough as I was never registered under PAYE.

the plan was to stay in business but after spending money on my weekly salary for six months, and expenses related trying to get new business, I’m running out of money.

So to clarify only support available for me is a loan from the bank?

Furlough is not available.
It doesn't sound like your business is the type to be shut down due to coronavirus, so no help there.
Universal credit (or tax credits if you claim them; a claim to UC permanently stops tax credits).
A start up loan, but you need a business plan an there are other conditions:
https://www.gov.uk/apply-start-up-loan

A bounce back loan, as discussed.
Mortgage/other finance breaks.

Grumpy_chap

The advice to draw dividends plus a small salary was prudent at the time it was given.

If you have been taking a "small weekly salary", you should have been running payroll and declaring PAYE (even if no tax / NI is due).  It may be worth checking with your Accountant whether you have missed any reporting here and I would also ask whether the amount drawn would be better as dividend (depends on whether you have exceeded the personal allowance).

Drawing salary weekly means weekly payroll costs (unless you do your own) and monthly salary will save some of the admin charges.

BBLS may be an option, but you will need to have a plan to repay it.  Will you resurrect the business?  If not, will you seek regular PAYE employment?  If you will not resurrect the business, it may be worth winding it all up and finding out whether you can qualify for JSA and / or UC.  UC will depend on any savings, but you say they are all spent.

Out of interest, what is the general line of work you do?  There may be people on here you can give suggestions as to how you might adapt what you do to secure more opportunities while COVID remains (which is for ever).

JamoLew

EmmieAwards said:

Hi guys 

I started my business in Nov 2019, I worked as a sole employee director paying myself through dividends and a small weekly salary. I was advised by my accountant this was the best thing to do. Since May I lost my sole contract and have been burning money to stay afloat. From what I can see, my situation completely misses out on the furlough options, meaning I have no option but to take a loan, is this correct?

A business that depends on a sole contract is always going to struggle with its long tern viability.
Can you diversify at all ?

mattyprice4004

I'd look into other bits and pieces you can do - but relying on one source of income has been a killer for many, many businesses.

Those eggs need to be spread between multiple baskets. Best of luck, hopefully you find new clients soon.

amykirk1996

Another one excluded.

mobilejo

Grumpy_chap said:

The advice to draw dividends plus a small salary was prudent at the time it was given.

It is still prudent now depending on circumstances (i.e how much you extract from your company each year) - I can only plan based on current tax rates as we do not know in what way, or how, they may change in the future. But under the current system, I would still not change how I remunerate myself. 

You would need to pay yourself PAYE of just the right amount to ensure that you're not earning over whatever arbitrary limit the Gov set for support  - this time, it was 'earn over £50k and you're not eligible for furlough' - next time, if there is a next time, that limit could go up or down. Get it wrong by paying £49k in PAYE if the limit for the next round gets set to £45k, and the whole thing has been for nothing. 

But then also factor in different in total take home pay based on high PAYE + less dividends v low PAYE + high dividends. On my own calculations, I have saved around £45k over the last few years by opting for low PAYE. I would not be getting that much support via furlough if I needed it.

I would rather have the money I have saved over the years, than have paid extra to HMRC only to try and claim something back now.

I guess you could call me #excludedbychoice

68ComebackSpecial

mobilejo said:

Grumpy_chap said:

The advice to draw dividends plus a small salary was prudent at the time it was given.

It is still prudent now depending on circumstances (i.e how much you extract from your company each year) - I can only plan based on current tax rates as we do not know in what way, or how, they may change in the future. But under the current system, I would still not change how I remunerate myself. 

You would need to pay yourself PAYE of just the right amount to ensure that you're not earning over whatever arbitrary limit the Gov set for support  - this time, it was 'earn over £50k and you're not eligible for furlough' - next time, if there is a next time, that limit could go up or down. Get it wrong by paying £49k in PAYE if the limit for the next round gets set to £45k, and the whole thing has been for nothing. 

But then also factor in different in total take home pay based on high PAYE + less dividends v low PAYE + high dividends. On my own calculations, I have saved around £45k over the last few years by opting for low PAYE. I would not be getting that much support via furlough if I needed it.

I would rather have the money I have saved over the years, than have paid extra to HMRC only to try and claim something back now.

I guess you could call me #excludedbychoice

That's incorrect - there was no earnings limit over which an employee was not eligible for furlough. It was capped at £2,500 per month and even someone earning a PAYE salary of £1 million p.a. could have received this amount. I think you are confusing it with the £50k limit for SEISS.