Yesterday evening, Chancellor of the Exchequer Rishi Sunak announced new financial measures to help the self-employed through the coronavirus pandemic. The following is, in short, what was announced:
- A taxable grant for up to 80% of your average profit over the last 3 years;
- Up to £2,500/m for up to 3 months, subject to extension;
- Only open to those where the majority of income is from self-employment;
- Only for those with profits up to £50k;
- You need to have filed a tax return with self-employment income for 2018/19 (if you haven't, you've now got a 4-week extension to do it);
- Grants will start at the beginning of June;
- HMRC will contact you if you're eligible, and it will be paid directly into your bank account.
Of course, there are many questions around this guidance. How does it apply to PSCs? Can I claim 80% of my salary as a furloughed employee of my own limited company under the Coronavirus Job Retention Scheme (CJRS)? Could accepting this government help affect my IR35 employment status in the future? We’re hoping for some clarification over the coming weeks, but in the meantime, Larsen Howie’s Head of Tax Andy Vessey explains what’s been made available so far.
Limited company contractors still not accounted for in COVID-19 financial support
“Whilst the Chancellor’s announcement of the Self-employment Income Support Scheme was good news for self-employed individuals or members of a partnership, it would appear that contractors operating through their own PSC’s have been left out in the cold,” says Vessey. “For now, therefore, the financial support from Government that PSC’s can access is as follows:”
Coronavirus Job Retention Scheme (CJRS)
“Government guidance states that all UK employers with an existing PAYE scheme will be able to claim the 80% subsidy of wages up to the cap of £2.5K per employee per month. There is, however, is some debate as to whether or not a contractor is an employee of their own limited company; they would normally be classed as an officeholder, although HMRC’s criteria that the company should have an existing PAYE payroll scheme may be sufficient for a claim to be made.”
“That said, many contractors extract profits by way of minimal salary, with the greater part of their remuneration made up by way of dividends. This could present a problem – like in the case of full and part-time salaried employees, the employee’s actual salary before tax as of 19/03/20 should be used to calculate the 80%. Thus, where a contractor has been receiving a minimal salary, any eligible claim won’t be as great as £2.5K.”
“Wages of furloughed employees will be subject to Income Tax and NIC as usual. Total grant received under this scheme will have to be included in the PSC’s calculation of its taxable profits for C.T, although it will be able to deduct employment costs as normal.”
Coronavirus Business Interruption Loan Scheme
“This allows SMEs access to loans, overdrafts, invoice finance, and asset finance of up to £5M for up to 6 years.”
“Loans are secured up to 80% by the Government and the first 12 months interest is covered by the government.”
“VAT payments for the period 20/03/20 – 30/06/20 are to be deferred and businesses will be given until the end of this current tax year to pay any liabilities that have accumulated during the deferral period.”
“Businesses may wish to consider issuing proforma invoices or requests for payment rather than a tax invoice as no tax point is created at this time. Although VAT will have to be accounted for once a tax point is created, issuing one of these documents at the relevant time may delay the requirement to account for VAT thereby assisting cash flow.”
Self-Assessment interim payments on account 2019/20
“For contractors who are required to pay a second interim payment on account for 2019/20 on 31/07/20 under Self-Assessment, they will have the option to push this back to 31/01/21.”
Time to pay
“Businesses with outstanding tax liabilities can ask HMRC for extra time to pay these by contacting the department.”
“PSCs are somewhat unique in this situation as whilst they are a corporate vehicle, there is typically only one person earning fees as they would do if they were a sole trader. Yet, they don’t qualify for the Self-Employed Income Support Scheme and there is a question mark as to whether they qualify for CJRS. This needs to be addressed by the government post-haste as these businesses are caught in no man's land at present.”
“Because of the same degree of help being afforded the self-employed, the Chancellor did give a very strong hint that there may well be a levelling of the NIC playing field between rates for the self-employed & the employed. This, however, will only affect sole traders & partnerships who pay Class 2 and Class 4 NIC rather than Class 1 NIC.”
Stay prepared for when work picks up post-COVID-19
It’s important to remember that COVID-19 will not be here forever. When things return to normal - and they will - there is going to be demand for highly skilled and flexible workers, so use this time to take stock and invest in your marketing. See here for more practical tips on how to retain (or even win) as much work as possible during this unprecedented time, as well as stay proactive despite a reduced income.
In the meantime, take advantage of the many mortgage holidays, rent protections, lower interest rates, and relaxed debt penalties that have been put in place across the UK; it’s better to take precautions now than wait until you’re actively struggling further down the line. You should also stay prepared by keeping your business insurances up to date, as well as doing your due diligence on your IR35 employment status – after all, you’re still responsible for your determination until 2021.
Besides a comprehensive suite of business insurances including professional indemnity and public liability, Larsen Howie offers a range of contract and working practices reviews – you can find out which option would be best for you here. We also offer representation from Andy Vessey should it go to tribunal, as well as training and consultation for businesses that wish to continue working with their invaluable contractor workforce.
For any further information or advice, please call us on 01163 800 400 or drop us an email. Alternatively, take a look around our Knowledge Hub for more IR35 advice, industry news, and contractor guides.
Finally, we've put together a collection of helpful links that include health advice (both physical and mental), official government statements, and rolling updates. See below: