Report calls on Government to help limited company contractors
The Treasury Select Committee has told the Government that it “must” improve the COVID-19 support available to nearly three-quarters of a million limited company contractors and hundreds of thousands of other self-employed workers.
In a report exploring the gaps in the state Coronavirus support, contractors were identified as one of four groups of concern. The remaining three are the newly self-employed, self-employed workers with average profits of £50,000 and above, and freelancers on short-term contracts.
Contractors need “a practical solution”
When focusing on contractors, whose company dividends do not count towards the Coronavirus Job Retention Scheme (CJRS), the Government has been told that it “must find a practical solution to supporting hundreds of thousands of limited company directors who are missing out on support because they pay themselves in dividends.”
In agreement was IPSE’s Director of Policy, Andy Chamberlain, who said most freelancers impacted by COVID-19 are now “burning through their savings to get by. This group in particular is a startling and glaring omission from the Government support.”
CEO of Qdos, Seb Maley, also welcomed the report and praised the Treasury Select Committee for sending a “clear message to the Chancellor, who must plug this hole in the Coronavirus support.”
Maley also questioned why freelancers and contractors have been left “stranded” at a time when many face “tremendous difficulties, as projects get cancelled and they face pressure from clients to reduce their rates.”
Calls to review self-employment support scheme
The Government faces pressure to examine the eligibility criteria for the recently extended Self-employment Income Support Scheme (SEISS). According to the report, “there are likely to be hundreds of thousands of people who have set themselves up in business since April 2019 who do not meet the eligibility criteria for either scheme.”
While recognising the challenges facing the Government, that is tasked with mitigating “the very real risk of fraudulent claims for support”, the Treasury Select Committee recommended an “urgent review to see how it can extend support to those newly self-employed who are unable to benefit.”
£50,000 “cliff edge” must be scrapped
Self-employed workers with trading profits of £50,000 per year or more also slip through the net, finding themselves ineligible for the SEISS. Clarifying the Government’s position, the Chancellor recently said “the average income of those who earned more than £50,000 in 18/19 was more than £200,000. It is not right for the Government to be giving money to individuals with higher average incomes who are more likely to have access to savings and other resources.”
However, with around 225,000 self-employed workers set to miss out on this support, the Treasury Select Committee stressed that the Government “must tackle this cliff edge that exists in the design of the SEISS by removing the £50,000 cap and allowing those with profits just over this cap access to some financial support, up to the total monthly support cap of £2,500.”
Short-term PAYE workers also overlooked
The report addressed the fact that thousands of freelancers on short-term contracts miss out on substantial state support, despite paying PAYE taxes. This may occur due to the worker not having been engaged in a contract for enough, that they do not earn more than half of their income from self-employment, that their contract stopped for reasons other than COVID-19 or that their employer chose not to place them on the CJRS.
As a result, the report calls on the Government to “recognise the impact of the coronavirus on PAYE freelance workers and establish a system of support which ensures that this group of people can access financial support during the crisis. We recommend it gives this group access to financial support that equates to 80 per cent of their average monthly income earned in the first 11 months of the 2019–20 tax year, based on their PAYE tax record in year.”
Commit “unused funds”, urges IPSE
Having contributed significantly to the report, IPSE also suggested a way for the Government to pay for this extra support. According to the association, there are over 1million fewer eligible people drawing down on the SEISS, which led Andy Chamberlain to advise the Chancellor to invest these unused funds to “help struggling, left behind freelance groups. We are far from the economy and the freelance sector returning to normal: as the Select Committee report highlights, these vital groups urgently need more support if they are to get through the coming months.”
The full report can be read here.
I’m reading your new post this morning concerning contractors and calls for help from Govt. How does this help people like my husband who has HAD to be inside IR35 (technically because he works remotely, he is not) and the HMRC are saying he is employed. He is not employed by the Local Authority he is assigned to, nor his Agency, and he is still paying the Employers National Insurance contribution plus the standard contribution. Who employs him. Nobody. His commitment to working for Local Authority spans over 30 years and this is disgraceful. The whole argument about IR35 is disgraceful in itself. He has had no support since Lockdown. Can anybody shed some light on whether this new call for Aid by the Government will at last help professional contracts working for local Government inside IR35. Thank you.
Hi Hilary you raise several issues within your questions and some will require further clarification.
1) IR35 was originally intended to deter very Senior Public Sector workers leaving jobs as Employees on Friday and then miraculously returning to the same job on Monday as a Contractor.
2) Contractors that work in the Private Sector had been led to understand that IR35 was working well, so well in fact, that it needed to be introduced to the Private Sector. This decision caused incalculable damage to Contractors in the run up to April 5th. The Treasury had ample opportunity to stop it in the Budget but pushed ahead regardless. It was only COVID 19 that stopped IR35 and even then it has only postponed IR35 in the Private Sector which still continues to cause problems and it must be abandoned completely in the Private Sector for a multitude of reasons.
3) In respect of the Public Sector and how IR35 may seemingly apply to your husband. It would appear that Local Authorities etc. realised that they could reduce their Pension Liabilities, exposure to Trade Unions and bloated Sick Pay Claims etc. (all the typical Tropes associated with the Public Sector), by using Contractors; however these Contractors have to be within the scope of IR35.
This means that these Contractors cannot work through their own Limited Companies but must either become Payrolled Staff, or work through an Umbrella Company.
4) It is probable that your Husband is actually employed via an Umbrella Company, however there is no obligation for an Umbrella Company to Furlough an Employee, and in fact you cannot be Furloughed from a Public Sector job.
5) To conclude you need to confirm the following before advice can be given. I suspect that the Local Authority use an Agency to obtain Staff, and then the Agency insists that the Staff are employed through an Umbrella Company. I then suspect that the Umbrella Company has refused to Furlough your Husband because his role is concerned with the Public Sector.
Hi my husband obtains his contract through an Agent. The job is either Inside or outside IR35. Conplicated.
He has been refused help in line with all self employed because they say he is employed. He is not employed. His agency are responsible for the deductions but he is not an employee. He does not get paid via an umbrella company. And he receives his pay net of deductions. He has to complete self assessment yet they are saying he is not due any help because he is an employee. He has no employee benefits so hoe is he an employee. This is far too complex for me. My husband is sick to his stomach of the whole IR 35 issue. Been working for local Government both as an employee and then since 2002 as a contractor and very committed and hardworking he is.
Why isn’t he getting the help that all self employed people are receiving. Tax ‘experts’ at HMRC are saying it’s because he is inside IR35. A point he is unable to negotiate although he is completely remote to his office. I thought this itself is a major factor in deciding the status of the work offered.
Hi my husband obtains his contract through an Agent. The job is either Inside or outside IR35. Conplicated.
He has been refused help in line with all self employed because they say he is employed. He is not employed. His agency are responsible for the deductions but he is not an employee. He does not get paid via an umbrella company. And he receives his pay net of deductions. He has to complete self assessment yet they are saying he is not due any help because he is an employee. He has no employee benefits so hoe is he an employee. This is far too complex for me. My husband is sick to his stomach of the whole IR 35 issue. Been working for local Government both as an employee and then since 2002 as a contractor and very committed and hardworking he is.
Why isn’t he getting the help that all self employed people are receiving. Tax ‘experts’ at HMRC are saying it’s because he is inside IR35. A point he is unable to negotiate although he is completely remote to his office. I thought this itself is a major factor in deciding the status of the work offered.
Hi Hilary it sounds as if your Husband is an Off-Payroll Contractor working for a Public Sector Organisation.
As per the Cabinet Office Directive of the 3rd April 2020 this would have made him eligible for Conavirus Job Retention scheme.
However the deadline for initial registration to this scheme was the 10th June 2020.
You will need to check his Terms of Engagement with the Agency, but given as you have stated that he receives his pay “Net of Deductions”, he appears to receive a “Payslip” from the Agency. Check whether he also receives an annual P60.
As previously stated the Agency as the Employer will have been under no obligation to place him within their Furlough scheme. The unwillingness could have been related to Holiday Pay as the Agency would have needed to accrue Holiday Pay and this would be a cost with a cashflow consequence. It could also have been related to what might essentially be a Zero Hour contract, Check the Contract to determine whether he is guaranteed (say 37.5 Hours) work a week, as opposed to no guarantee of weekly hours.
In short he is not an Employee of his Public Sector Client but is contracted to the Agency as an Employee albeit on Zero Hours.
P.S. He may be eligible for Universal Credit particularly if there is only one source of marital income.
Good afternoon
I have had a mix of Self Employed roles and short to medium term fixed term contracted PAYE roles.
I have earned more on PAYE apart from in one year where I earned more via Self Employment!
I have submitted all my Self Employed Tax Returns over the past 3 years and paid what is expected of me together with the PAYE tax. Recently paying my Self Employment tax in January.
My recent short term Event Management Contract finished early due to the virus and I have an email noting that was the reason why. Losing 2 weeks contract money was a significant loss.
The day I applied for Universal Credit, I was offered an advanced payment. I accepted this as I was waiting for payment from my contract and had no idea what was going to happen. I was advised that the terms of repayment for the advanced payment would be applicable from the first Universal Credit payment received. I accepted as that was the only way I would receive the money.
Having got paid from my contract in April, I wasn’t eligible for UC in April. I received UC in May – the first payment since applying in March. As advised the first instalment from the advanced payment was deducted.
I find this very interesting given all the other benefits received by others in the other schemes whereby it is my understanding that repayments are not due for 12 months or so.
Needless to say, I would benefit from receiving the tax I paid in January, and the money lost from my contract finishing early. It would also be helpful if the repayment of the advanced UC payment could be repaid once I have regular work!
I look forward to understanding the outcome of the report.
The treasury select commitèe , whomever they are, is a pointless entity which has been repeatedly ignored on every matter of importance that goes against the HMRC agenda