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COVID-19 help for contractors ruled out for “practical reasons”

Contractors will not receive further COVID-19 support, Chancellor says

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. 

“It is not possible” to extend support

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.”

The Government has “done all it can”

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.”

Chancellor’s response is “deeply disappointing”

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.

By Contractor Weekly

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19 thoughts on “COVID-19 help for contractors ruled out for “practical reasons””

  1. Adrian Bara

    The government only remembers contractors when they want to get money out of us. We are just cash cows for them, not people.

    • Observer

      Contractors also act as Vat collectors or agents for HMRC e.g collect VAT from clients and pay them to HMRC. On top of that, they have to pay dividend tax, personal income tax, Fees etc. During bad markets conditions, contractors get no support from the government. It’s really irony.

  2. Steve

    To be honest, this seems fair. A number of Ltd Company contractors, myself included, paid themselves dividends and little or no salary to minimise the amount we paid in National Insurance. If we haven’t paid the premiums we can hardly claim that we aren’t covered by the insurance. Its the nature of contracting to accept a higher level of risk in exchange for higher income so we have to take the rough with the smooth. If we want job security and safety nets we can always go permie.

    • alastair hargrave

      Is it fair? – next april rishi will go again with the reforms and require contractors to fund the debts he has placed on the economy – the same economy we work within. i pay tax. dividends have tax. the only part of contention is employers national insurance.

      I have seen fair times and foul. i work on that basis. in april we will not be able to do that. i will not be able to put money by for troubled times like this. it is a positive thing to be able to do that. its scary to me if we arent. as for perm. well look at the redundancies and then say that is a fair return. that is why after 2 of them i became a contractor. dumped twice.

    • nev

      Exactly – dividends is avoidance of national insurance contributions. Contractors (generally) avoid paying NI – aka ‘scoial contribution’, and then there is an expectation of receiving benefits without having made that social contribution. The phrase “having cake and eating it” comes to mind…….

      • SH

        Same old tired response of those who see contractors as tax dodgers with no understanding of the tax system. The main NI difference is the contributions that those companies who employ contractors can currently avoid. So it’s the companies not the contractors who benefit. As already mentioned dividends are now taxed which makes up for any NI exemptions you may get depending on how you structure your payments. Also once you are out of the basic rate tax band contractors pay more tax than any permanent employees £1 for £1.

      • Graham Bennett

        Like permies avoid paying for their own training, holidays and so on? We could equally say they are sponging on their companies, the economy and directly and indirectly on the government, but we don’t. The fact is that in an open labour market, they are free to go contracting and provide flexible labour for the economy any time they want to. That is the deal. Contractors don’t make the rules, and we don’t get to decide whether to form a limited company. There is no choice. If you want the freedom to do contracts and not be “owned” indefinitely by some company you need a limited company just to get work and get paid. You can’t do everything through an umbrella company, or as a kept man (a permie).

    • Harry

      There is no way you are a contactor in any guise . HMRC plant .

    • Graham Bennett

      Is it fair for someone to prevent me from working and not compensate me?

      When first announcing that there would be no compensation, this D.H. said it was , “because they [contractors] don’t put anything in.

      Even if that were true, the government should not be allowed to prevent us from working without compensating us.

      As it happens, though, he was spouting nonsense. We do put in. Lots. Tax, VAT, NI, Company fees plus all the other taxes on goods, houses, training whatever.

      The bottom line, of course, is that he is now giving a *different* reason that contradicts his original excuse.

      I rest my case.

    • IR35 Victim

      Yes you are right.

      But perhaps competing in a market place for clients is one thing, having your own government impose tax rules that specifically target the LTD “because your just an employee” and then using that legislation to collapse the market “because your just an employee”

      and then when the inevitable happens they turn around and say

      “we can’t help you because”

      wait for it …

      “your just a company”

  3. ganymede

    The only reason HMRC failed, was because they are seeking maximum taxes not fair taxes. The Chancellor identified the exact dividends which should and shouldn’t fall under the national insurance replacement dividend tax, and shouldn’t be included in the dividend tax calculations. Putting an extra section in the self assessment wasn’t a great task, just never one hint of being fair. The dividend tax is paid, in place of national insurance, and that should come with the same benefits under furlough.

    However myself I could get furlough, as I don’t use dividends, I could may be use SEISS, but be clear what the Chancellor said, and soon as Covid is over we are coming after you. Actually for the Self Employed, I see for those that did get support a heap of pain from HMRC, as they look into every single penny given and way to claw it all back with interest.

  4. Graham

    Whilst partially agreeing with Steve’s comment at 10.27am it strikes me that as a director of a LTD company I pay my way through Corporation Tax, VAT and Personal Tax and may pay some NI. Always paid on time and have worked through the increasing Dividend taxation and now the IR35 debacle.
    It’s about having a fair system for all.
    Workers on a self employed basis were allowed to receive “grants” at up to 75% of their earnings based on previous tax years info and only had to confirm they were “effected” by COVID19 – not that they could not or were not working. In the second tranche a lower payment of 60% but the same again – effected by COVID19 but could still work. These workers also can still do cash jobs and only declare what they decide to.
    So I don’t understand the Government stance on stating they do not have the info to split out source of dividends. If they are steady numbers over the last few years then take a % like they did with self employed.
    Just seems very unfair to hang out to dry the flexible workforce the Government say this country needs and those have just started out in business.

    • nev

      The HMRC system is fair (Quote last post: ‘may pay some NI)………the Furlough benefit payable is aligned with PAYE and hence NI conribution……….hence the higher amounts of NI that have been avoided by minimising PAYE, then furlough benefit reduces. Likewise, the concientious contractor who pays enough PAYE to cover living costs (which is the underlying HMRC guidance on PAYE levels) then they receive the corresponding furlough benefit. Its fair and simple.

  5. Milleniumaire

    I don’t expect my limited company to get any help that other companies don’t get.
    The furlough system applies to all companies and so is also available to my limited company.
    I too take a small salary with the rest taken in dividends and have done this for 22 years since the company was setup.
    Back in March, my client gave me 4 hours notice of termination of contract due to Covid-19. We are fortunate enough to have retained profits to live on.
    I would hope this whole situation will be a strong pointer against mutuality of obligation should we ever have a tax investigation. Obviously the CEST tool wouldn’t consider the current situation as HMRC have chosen not to include MOO.

  6. James

    Perhaps we should tell the chancellor it’s too complicated when HRMC ask for your tax. I know for a fact many directors have been living off the money that they had put aside for tax.

  7. Tony Craven

    The government has done all it can to help contractors ………shut up and leave the country

  8. Jo Jo San

    The answer is so simple
    Tax expenditure only… with exeptions for certain categories e.g., disabled, pensioners and so on
    Requires the sadly lacking bottle, however
    Haha! Then we would all know exactly how much tax we actually pay!
    Many, many, many vested interests lie in status quo
    Along with jobsworths and other parasites

  9. Simon

    What about those contractors who worked through an umbrella company, we pay both our ER and EE NI conts, yet my umbrella company would not furlough me as it would have cost them money.

    No help for me whatsoever

  10. IR35 Victim

    Permie
    ——–
    I will pay taxes totalling £18,000 each year inc NI

    Contractor
    ————
    I will pay taxes totalling £56,000 each year inc VAT

    HMRC
    ——-
    Contractor will pay PAYE on the full amount and based on that HMRC will be loads better off

    Reality (Kicks in)
    ——————-
    NO permanent job pays the same as consultant rates, so tax take will ALWAYS be lower

    HMRC
    ——-
    Lets look at those pensions the permits have bet there is loads of money in there, we can raid those

    good luck in 2021

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