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Contractors “ignored” in COVID-19 support package

Limited company contractors overlooked in COVID-19 help

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.

Contractors “ignored” when it “matters most”

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.”

Newly self-employed also overlooked 

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.

By Contractor Weekly

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32 thoughts on “Contractors “ignored” in COVID-19 support package”

  1. Jon

    Contractors overlooked – not at all – 80% of salary is fair

    If a contractor chooses to take large dividends that’s a choice – dividends should not be protected

    By taking dividends they have paid less in hence less out – why do people think there is an issue?

    • Stephen Lamdin

      So many reasons … first the tax advantage is minimal. Second the contractor won’t know his profits til the year end so a dividend is the best way of extracting profits legally. Three. PAYE has an admin cost that dividends don’t Four and most importantly to go on furlough the contractor will have to stop work which won’t be the case with the self employed…. a massive failure of policy by govt and ramping up of anti small business sentiment

    • Ashley Sexton

      What a ridiculous and un-sensitive comment!

      Small business owners generally all take a very small PAYE salary. 80% of this would be next to nothing. Yes, we take dividends drawn from the profit of our companies which tops up our salary to the amount required to live, but we then pay tax on these dividends too. I am sure we will be expected to repay all the government help through taxes in the future too, so why should we be left out of the equation? Personally,I have two small children to support and without help, we will not survive and neither will my business which will soon be bankrupt with no income whatsoever.

      The government needs to review this immediately before businesses like mine need to start laying off staff and business owners like me are unable to pay our mortgages, bills, meet financial commitments and most importantly, are unable to feed our families!

    • Ashley

      What a ridiculous and un-sensitive comment!

      Small business owners generally all take a very small PAYE salary. 80% of this would be next to nothing. Yes, we take dividends drawn from the profit of our companies which tops up our salary to the amount required to live, but we then pay tax on these dividends too. I am sure we will be expected to repay all the government help through taxes in the future too, so why should we be left out of the equation? Personally,I have two small children to support and without help, we will not survive and neither will my business which will soon be bankrupt with no income whatsoever.

      The government needs to review this immediately before businesses like mine need to start laying off staff and business owners like me are unable to pay our mortgages, bills, meet financial commitments and most importantly, are unable to feed our families!

  2. Diane Blaxland

    A Cabinet Office Guidance Note on Payments to Suppliers for Contingent Workers impacted by Civid-19 dated March 2020 (kindly posted on LinkedIn by Sam Alsop-Hall) states that Ltd Company contractors currently engaged by the Public Sector covered for up to 80% of £2,500/month.

    Perhaps this could be extended to Ltd Company contractors currently engaged by the private sector ?

    • Diane Blaxland

      To clarify – per Cabinet Office statement above – a Director of a Limited Company cannot work on their Public Sector contract due to Covid-19 is to be “paid as normal” by their public sector client ie the Limited Company will receive up to 80% of £2500/month. This is not capped by how much of that revenue the Director would usually then pay to self as salary (typically a maximum of £715 /month on accountant’s advice) rather than as dividends.

  3. Ryan

    With one move, the government has unquestionably proved that Ltd contractors are NOT employees, as they fail to meet any of the requirements set out to be eligible for employee assistance.

    I fail to see how the government will try to continue to argue that the same people who the have offered absolutely zero assistance to, are in fact disguised employees and therefor should pay additional tax. They have made it VERY clear to everyone that Ltd Co operators are NOT employees at all when it comes to the Government putting their hand in their pocket.

    • Antony Steven

      Absolutely correct – however with HMRC and the disgusting way they operate – it doesnt make a jot of difference. If the can change the laws and back date them they can do anything they want.

  4. Brett Durovigutum

    I was contracting as a PSC until 2017 (to go consulting) as a PAYE. I paid myself the national average salary and then topped up with dividends and didn’t take child benefit. I’ve seen terrible abuse of IR35 for tax avoidance (helpdesk staff outside of IR35, LTD company income paid to personal bank accounts, company folded every two years to take tax break) and for two years have heard the wailing over how unfair the enforcement of the rules are and how a PSC takes genuine financial risk. Now, when a share of the tax paid by employees is required by people who have not contributed it’s suddenly “unfair”. Moving forward I hope that genuine expenses are allowed before all income is taxed equally despite how/where you work in a much simplified personal taxation system.

    • Ryan

      I don’t think it’s unfair at all. What I’m saying is, leave me alone to operate my business as I have for 15 years, don’t offer me the same benefits and security as an employee, as that’s not what I am. I’m more than happy with that.

      However, DO NOT try and tax me as an employee, but then refuse to provide the same level of benefits and safety net that’s given to employees.

      If you want me to pay full employee taxes, then give me full employee benefits and rights, end of story.

      • Zephry

        I agree, well said and the exact reason why I have never undertaken a client engagement that fell inside of IR35.

        Also as someone who has been running my own company for 15+ years I really think it’s time to stop calling Ltd Company businesses… Contractors!!!!

        If we are looking for support as owners of Ltd companies we should be looking at and pushing for support targeted specifically for businesses and not bemoaning exclusion from the package offered to the freelance/ self employed sector. The chancellor himself has made the distinction and I think we need to utilise that to our advantage.

        Maybe this could become the contractor and ltd company weekly instead!

  5. Brett Durovigutum

    I was contracting as a PSC until 2017 (to go consulting) as a PAYE. I paid myself the national average salary and then topped up with dividends and didn’t take child benefit. I’ve seen terrible abuse of IR35 for tax avoidance (helpdesk staff outside of IR35, LTD company income paid to personal bank accounts, company folded every two years to take tax break) and for two years have heard the wailing over how unfair the enforcement of the rules are and how a PSC takes genuine financial risk. Now, when a share of the tax paid by employees is required by people who have not contributed it’s suddenly “unfair”. Moving forward I hope that genuine expenses are allowed before all income is taxed equally despite how/where you work in a much simplified personal taxation system.

    • Graham

      Expenses is the real killer for the proposed IR35 reforms. How anyone is supposed to pay full tax on their income and effectively pay for a second home (if working away) out of that taxed income, is beyond me. It massively reduces work opportunities and i’m not aware of ANY permie who does it.
      I totally agree that if genuine expenses were allowed on top of a daily rate, it would be more bearable.

  6. Gill

    With the date being 28 February to qualify as an “employee” the government have also cleverly avoided paying those contractors who work for the financial services sector and who were forced by the banks they work for to move to umberella companies as “employees” or move out – double whammy.

  7. Geoff

    People pay dividends to reduce their NI bill. They cannot then claim it is effectively salary and ask for the same support as those paying full NI.
    It is tough, but that is the choice we made.

  8. DRE

    It is fine that contractors are ignored, as long as they then use this to recognise we are definitely not employees and remove IR35!

  9. Antony Steven

    Makes a mockery of saying that they are disguised employees and IR35.
    Cant have it both ways HMRC!
    Either we are disguised employees and should get the C-19 payout or we are not. A useful marker for future court cases.

  10. IR35 Victim

    I do wish people would stop looking at 1 particular tax NI.

    Freelancers provide tax in multiple ways, the overall value should be looked at.

    We provide a lot more taxes than an employee, HMRC has driven this division on permie vs contractors.

    HMRC will see massive revenue drops after 30 years of freelance, I am now signed on for benefits.

    So now I get to be a net taker like most permies.

  11. Graham

    This sort of article really doesn’t help the contractor cause.

    Most of the time we argue we are genuine businesses and should be allowed to pay dividends etc. to offset the risk of the way we work.

    Now we ARE being treated as business, a handful of contractors don’t like it.

    People need to make their minds up because they are in danger of ruining things for genuine contractors.

  12. Mark

    HMRC have somehow twisted the picture of Ltd Co contracting as mass tax evasion. I pay more tax than most employees do – Corporation Tax, Dividend Tax, VAT, as well as supporting the economy by running a business that employs accountants, insurance companies, buys its own equipment etc ( all of which I pay VAT on as well ).

    This demonisation of small company specialists needs to stop. I run a business legally, and pay the taxes I am advised I am legally obliged to by HMRC.

    The only rainbow at the end of yet another kick in the face from the government is that I can’t be classed as a disguised employee, or self employed as this has proved my business falls outside those 2 categories, and therefore outside of IR35.

    I’ll manage with my own business financial contingencies, to have a much stronger argument for being an independent business after this problem for the world is over.

  13. LookingForWorkAndy

    To be honest, I could happily concede not receiving any additional support from the Government during this time of national crisis on the basis that I’ve paid myself dividends and therefore have made more tax efficient use of the money I’ve received whilst in contract.

    However, what I absolutely abhor is the Chancellor’s statement that once this is all over, there needs to be a crackdown on contributions made by contractors.

    I’ve been out of work several months and the outlook at present doesn’t look great. As a contractor I take the bad with the good and of course am not entitled to sick pay, paid holiday, paid training, and pension contributions. Likewise I have no job security and also have to pay additional costs for business insurances and accountancy fees. Aside from the financial costs, there are also the costs in terms of additional time spent administering my company and managing invoices and client timesheets etc.

    My point is, Contractors are not the same as self employed. What the Chancellor is effectively saying is ‘You get nothing now, because you’re perceived as different to permanent employees, but after the crisis we will be levelling the tax playing field despite not levelling the benefit/risk playing field’.

    It’s absolutely shameful and disgusting and entirely naive of someone in such a position to make blanket statements with no clue as to what he’s proposing.

    It’s a fairly simple calculation to work out that by destroying the contract market, there will be less money earned by contractors to pay tax upon. Let’s say a person in a technology role can earn either £50k per year OR a day rate of say £450. In a permanent role with a 5% pension contribution, that person will pay £6,998 per year in tax contributions. If the day rate yields £72k year in dividends and £10k year in PAYE then the tax contribution will be almost double at £13,062.

    I presume the Chancellor’s assumption is that contractors will all invoice the same money and just pay more tax on what they bring in. In fact, contractors will defer to the less complex and more supportive ‘Permanent’ framework and therefore bring in fewer receipts.

    • Geoff

      I think that when the Chancellor referred to levelling up NI he was referring to the NI paid by the self employed as sole traders or partnerships, not those working through a limited company.
      At least I hope so!

  14. Rasta

    Caution needs to be applied with this objection to the Job Retention Scheme. Some Directors of Limited Companies took the strategic decision to minimise their PAYE liabilities often by paying themselves under £8000 per annum, and potentially paying spouses under £8000 per annum. This meant that little or no Employee’s or Employer’s National Contribution was liable on that salaried element.

    The bulk of the income was then subjected to Corporation Tax at 19%, and then the profits were distributed via Dividends. The first £2K of Dividends were tax free, and the remainder up to £50K was subject to 7% Income Tax. So an effective tax rate of 26%

    This strategy was aggressive if not ‘fly’ or even ‘Superfly’. The Government seems to have taken the view that the salaried element is what needs to be protected, rather than the bonus (dividend) element, which is a reasonable argument.

    One of the features that I foresee to protect IR35 is that Dividends cannot be declared if the Salaried Element is below a certain amount.

    Just sayin !!!

  15. Mark G

    Yes I agree it is a terrible position to be in.
    The govt is incorrect you cannot be a disguised employee but when push comes to shove receive no benefits.
    We need clear criteria for being contractors or employees. If this involves performance, substitution location and approval (timesheets are stupid except like a lawyer or accountant)
    Why not timesheets because you are being paid to supply services and perform this.
    Usually professional fees are not structured like a contractor
    Maybe we take out the non consultants so helpdesk operators are NOT contractors. You could argue these are not jobs that can be run as a consultancy
    Yes HRMC are idiots but they are carrying on the confusion that HR and agencies have done before….

  16. Russell

    If the contractor had been paying themselves a reasonable salary via PAYE then wouldn’t they be able to claim 80% of that salary? If they have been systematically avoiding paying a reasonable amount of tax why would they expect HMRC to help them out when their money stops?

  17. Mark S

    I feel very disappointed by the misleading title of this article

    Fortunately I had already found out the details before opening the email, but It’s not until well into the text that you make the PAYE element clear

    Many people would be utterly distressed by the clear angle that the article infers and you could have prevented this with a more honest title

    I had been waiting in interest to find out what a usually reliable source had to say

    Not impressed

    • Tony V

      Which works out to be 80% of around £700 a month! and only if you have been trading for more than a year. I think the doll office will pay more! There’s nothing wrong with the headline.

  18. Diane Blaxland

    For some good news for Directors of Limited Companies see https://www.gov.uk/government/publications/procurement-policy-note-0220-supplier-relief-due-to-covid-19.
    Cabinet Office states that in some circumstances income earned via PAYE, umbrella or PSC will be replaced just the same – up to 80% of £2500/month.

    • Tony V

      PAYE element for a limited company is generally around £8000 to £9000 per year. Which equates to around £700 a month, so the government is offering 80% of around £700! But the tens of thousands of pounds that I’ve paid in taxes from other earnings within the limited company, those earnings are not covered.

  19. Mike C

    The treatment is not different for contractors. We are employees and will be covered for 80% of our salary, just like everyone else.
    Dividends are not salary. If the government covered dividend payments for contractors then they would have to cover dividend payments for investors of all companies – which is clearly ridiculous.
    When I started contracting 17 years ago my accountant asked me how much do I need to cover all my regular monthly bills and living expenses. He advised that I pay that in salary and use dividends like a bonus payment. This always seemed fair to me.
    It is important that we are consistent if we wish to be treated as a business then we should be taxed exactly like a business.

  20. Tony V

    It’s actually the governments fault that these drastic measures have had to occur in the U.K. due to Coronavirus. If the government had moved a lot earlier, and shut down airports and ports for non essential travel, and tested and traced anyone with symptoms then lock down would have been avoided. But I remember the government clearly telling the population that stopping travel would have limited impact! They forgot the U.K. is an island, the only way the virus can get in is via a plane or a boat or the Channel Tunnel. All of which were not locked down, even now a part of them is still open. So they allowed the virus take hold and to spread without any measure to block it until recently. If they had moved sooner and stopped it from coming in, we wouldn’t be in lock down right now and we wouldn’t be losing our livelihoods because of this governments complete and utter incompetence. They should fix this for everyone.

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