Architects have warned of ‘permanent damage’ to the profession because their practice structure means they do not qualify for the government’s coronavirus rescue package
Earlier this month the chancellor, Rishi Sunak, unveiled ‘unprecedented’ support to help businesses stay afloat during the outbreak, including covering 80 per cent of staff wages for those kept on ‘furlough’ by their employers.
After coming under pressure, Sunak followed this announcement with a similar relief package to help the UK’s five million self-employed workers, a scheme he said would help ‘95 per cent’ of people who work for themselves.
But it has emerged that the self-employed scheme excludes the owner-directors of limited companies paid via dividend from the companies’ profits, a common way for architecture practices to be set up.
It means a large number of small and medium-sized practices, as well as other creative professionals, look likely to fall through the gaps in the different schemes.
In an open letter circulated this weekend (see below), Mark Hatter, director of London-based Hatterwan Architects, argued the omission could result in ‘permanent damage’ to the profession.
He wrote: ‘While the recently announced government assistance for self-employed workers is welcomed, their decision to exclude directors paid via dividends is a very concerning oversight.
‘There is a real risk that this lack of support will lead to practices folding and the loss of jobs for both directors and any employees they may have.’
Hatter pointed out that incomes for directors are often well below the government’s £50,000 threshold for claiming assistance and that the title ‘director’ was no guarantee of a large salary or assets that can be drawn upon in a time of need.
In fact, the RIBA’s benchmarking survey puts the average salary for the director of a two-person practice at £26,938.
Hatter, who previously worked for Michael Hopkins and at AL_A, called on the chancellor to extend the current self-employed assistance proposals to include directors. He said typical income could be proven via filed tax returns, and the dividends can be demonstrated via company accounts.
It was an issue the RIBA should be lobbying the government about, Hatter added.
Owner-directors of small practices typically structure their accounts so they receive some income through PAYE, but take most of through a taxable dividend.
Practice directors are able to access the government’s job retention scheme and place themselves on ‘furlough’, but would only receive 80 per cent of the salary they pay themselves through PAYE.
Chris Hunt, of Yorkshire-based Niche Design Architects, is also affected by the omission. He said that while he could put the practice’s two employees on furlough, if he put himself on the retention scheme he would only receive £575.20 per month and would have to stop working.
Hunt said: ‘Effectively after we have paid our employees and ourselves, there is little in the way of any reserves left in the company to draw on in a time such as this.’
He added that while the practice had plenty of work, progressing new projects was difficult without being able to visit properties. Local planning authorities have also paused applications while they cannot carry out site visits, Hunt added.
He said: ‘All [our] site work with the exception of one project has now ceased, so we are not earning an income on those projects.’
London-based sole practitioner Ian McChesney said he was advised to set up a limited company under which to trade, as this would provide better protection in the event of a claim against the practice.
He said: ‘I cannot furlough myself, as this would mean doing no work at all for the company. In reality I’m still working in some capacity doing accounts, marketing research, and for some minor services that I can deliver remotely.’
McChesney said he had mixed feelings about being bailed out, as he doesn’t like taking handouts, but that the grant system was proving to be ‘inconsistent and problematic’ in its distribution, adding: ’Perhaps a system of universal basic income across all members of society might have been a better approach?’
Hatter said the government’s business support was necessarily piecemeal, but suggested a third support scheme for small business directors could cover those who had fallen through the gaps of the other two.
He said: ‘This would support not only architects, but a great number of small business directors in other trades and professions.’
The issue affects a range of creative professionals, including camera operators, sound engineers and lighting technicians. A petition calling for urgent changes to the scheme already has more than 150,000 signatories.
RIBA chief Alan Vallance said: ‘During this extraordinary and unsettling time, we are working hard to provide our members with the support, information and guidance they need.
‘While the chancellor has provided significant financial support through the Job Retention and Self-Employment Income Support schemes, it is clear this will not protect the incomes of all workers.
‘We will continue to inform the government of the issues facing our members as we engage on a daily basis.’
While the recently announced government assistance for self-employed workers is welcomed, their decision to exclude directors paid via dividends is a very concerning oversight. We believe this will have a disproportionate effect on architects and their families, especially architects in small to medium practices.
Due to the requirement for an architectural practice to carry professional indemnity insurance, it is common to set up as to set up a limited liability company with one or more directors, who are consequently paid via a dividend from the companies’ profits. Incomes for such directors are often modest, and well below the government’s £50,000 threshold for claiming assistance. The median income for a director of a two-person Architectural practice in 2019 was £26,938, (source: the RIBA’s benchmarking survey). This is substantially lower than the average 2019 UK salary of £36,611 (source: The Office for National Statistics). The title ‘director’ is no guarantee of a large salary or assets that can be drawn upon in a time of need.
It is hard to understand why such a large group has been excluded from the reasonable and necessary assistance that has been offered to other self-employed people. At a time where social distancing, home working, remote schooling and self-isolation are reducing both the work available to architects and their ability to work effectively, there is a real risk that this lack of support will lead to practices folding and the loss of jobs for both directors and any employees the may have. As well as hardship for individuals and their dependants, there will be a loss of hard-earned professional skills, to the detriment of the construction industry as a whole.
It should relatively simple to extend the current self-employed assistance proposals to include directors. Typical income can be proven via filed self-assessment tax returns, and the source of dividends can be demonstrated via company accounts.
We ask that the government amend the current assistance package to correct this omission, and to support a profession that will otherwise be severely and permanently damaged.
Mark Hatter RIBA