The Chancellor has said after having “carefully considered” the case for creating a new COVID-19 support system for limited company contractors, “for practical reasons” individuals who pay themselves salary and dividends will not receive significant state help.
Responding to a report which explored the gaps in the Coronavirus support, Rishi Sunak wrote to former Financial Secretary to the Treasury Mel Stride, who is now Chair of Treasury Select Committee, explaining why hundreds of thousands of contractors will be left to slip through the gaps.
Sunak, who has refused to bow to pressure from the likes of IPSE and the #ForgottenLtd campaign, explained that to offer “additional support for those who pay their wages via dividends is much more complex than existing income support schemes.”
The Chancellor then elaborated: “Unlike announced support schemes, which use information HMRC already holds, it would require owner-managers to make a claim and submit information that HMRC could not efficiently or consistently verify to ensure payments were made to eligible companies for eligible activity.
“This is because, under current reporting mechanisms, it is not possible for HMRC to distinguish between dividends derived from an individual’s own company and dividends from other sources. Nor is it possible to distinguish between dividends in lieu of employment income and as returns from other corporate activity.”
An alternative proposed by IPSE, which suggested the Government ‘pay now’ and ‘clawback’ fraudulent claims later, was also rejected by the Chancellor, who said that “such an approach would be highly resource-intensive to ensure appropriate compliance.”
Sunak then seemed to completely rule out contractors, along with newly self-employed workers and those with profits slightly above the £50,000 eligibility threshold, receiving Government help.
“For each support scheme, the Government has done all it can to support as many people as possible, but we have to minimise the risk posed by those intent on committing criminal fraud. Following IPSE’s proposal would be accepting a high risk that incorrect or fraudulent payments could not be recovered, ultimately at a cost to UK taxpayers.”
In reaction to the Chancellor’s letter, which directly referenced IPSE’s suggestion, the association’s Director of Policy, Andy Chamberlain said: “It is deeply disappointing that the Government has not seen fit to do more in response to the Treasury Select Committee report.”
Chamberlain added: “Although we appreciate the Government ‘carefully considering’ our proposal to support directors of limited companies with a pay now, clawback later policy, we do not think its response is enough. The response claims this approach would be too ‘resource-intensive’ and that including the newly self-employed in SEISS would involve too much of a risk of ‘fraudulent activity’.
“To this, we would say that limited company freelancers, the newly self-employed and other excluded groups have suffered enough that the Government should commit those resources and take those risks to protect these people.”
You can read the Chancellor’s full response to the Treasury Select Committee’s report here.