The Government faces a backlash from hundreds of thousands of contractors after it became clear that individuals operating through limited companies do not qualify for the COVID-19 self-employment support package.
Having already announced that employees will receive 80% of their salary up to £2,500, the Government revealed that self-employed workers – but not limited company contractors – impacted by COVID-19 will receive similar support for the next three months at least.
Self-employed workers who have recorded, on average, under £50,000 trading profit in each of the past three years can claim 80% of this up to £2,500 monthly. However, this scheme isn’t available to individuals who draw salary and dividends through their own company.
Those who have settled January’s self-assessment tax bill, have traded in the 2019/20 tax year, are trading when they apply, have lost profits due to COVID-19 and expect to continue working self-employed in the 2020/21 tax year can claim. The Government also stated that to do so, self-employed profits must make up more than 50% of the person’s income.
While this package was welcomed by millions of self-employed workers, the Chancellor – who has often been praised for the support offered to businesses affected by the Coronavirus – was criticised for overlooking “hundreds of thousands” of people who work through their own limited companies.
Seb Maley, CEO of Qdos, voiced his disappointment: “Like employees, these people pay their tax, contribute billions to the economy and are helping the UK through this crisis. So it’s concerning that the Government has ignored them when it matters most.”
Maley then said that by not including contractors, the recent delay to IR35 reform will “feel meaningless for the time being” to those who have lost all income due to COVID-19.
Meanwhile, IPSE’s Director of Policy, Andy Chamberlain, explained in a blog that his team worked closely with the Government on this package and while they made it clear that “any scheme should cover the whole self-employed population – including limited company contractors”, the Chancellor ultimately disagreed.
Limited company contractors, as employees of their own business, can apply for the Coronavirus Job Retention Scheme. But given these workers often pay themselves a low salary and top up their income through dividends for tax efficiency, the Government’s help may not amount to much. This is because the 80% contribution will only be made on PAYE earnings.
Legal Manager at Kingsbridge, Nicola Hayman, commented: “In reality, that amount is often likely to be a small percentage of what these professionals need to sustain themselves and their businesses – particularly during this difficult time.”
In addition to limited company contractors, people who went self-employed after April 2019 will not be eligible. Given these individuals will not yet have submitted a tax return, the Government will have nothing to base their earnings on.
Despite having welcomed this “historic lifeline of financial aid for the self-employed”, IPSE’s new CEO, Derek Cribb, did allude to the fact that it doesn’t “cover all self-employed people.” He then promised members that the lobbying-body will “keep working to fill in these gaps.”
More information regarding the COVID-19 help available to freelancers and contractors working via their own limited company can be found on Contractor Weekly here.