Limited company contractors won’t benefit from the new COVID-19 self-employed support package, unveiled by the Chancellor this week.
What support will be available to the ‘self-employed’?
According to today’s HM Treasury news release, the self-employed will be able to access Government help in the form of a direct cash grant – worth up to 80% of their profits, up to a maximum of £2,500 per month.
The Chancellor, Rishi Sunak, said that the Self-Employed Income Support Scheme (SEISS) will be open to around 95% of the ‘self-employed’. It will bring parity with the Coronavirus Job Retention Scheme, announced by the Chancellor last week, which provides up to £2,500 to employees who are furloughed during the COVID-19 outbreak.
Understandably, this state support will be widely welcomed by those who work for themselves, however, many questions remain about how exactly the scheme will work, due to the speed with which the Government has had to act,
Who is eligible for the SEISS?
- The scheme will be open to individuals and trading partnerships who recorded a trading profit of less than £50,000 in the 2018/19 tax year, or an average trading profit of less than this amount over the past three self-employment tax years.
- To qualify, you must have derived at least 50% of your income during these periods from self-employed activities.
- Unfortunately, as a new system will need to be created to deal with this new scheme, the Chancellor doesn’t expect grants to be paid out until June, however eligible recipients will receive one lump-sum payment covering March until May.
- The Chancellor has also granted those who have yet to complete their 2018/9 tax returns an extra four weeks to do so in order for them to access the scheme.
- Importantly, the scheme is only open to those who have lost trading profits due to COVID-19.
- HMRC states that it will use existing data to determine if you are eligible or not, and will contact taxpayers accordingly.
- Any money received from the SEISS is subject to standard income tax and NICs.
Limited company contractors specifically excluded
Crucially, for most of our readers, individuals who provide professional services via their own companies cannot access the SEISS.
Here is an extract from today’s release:
“Those who pay themselves a salary and dividends through their own company are not covered by the scheme but will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes.”
This means that a limited company worker can claim up to 80% of his PAYE salary only – via the employees’ CJRS, rather than this new self-employed scheme. Even then, it may be hard for owner-managers to claim the CJRS unless they are ‘furloughed’.
Even if you can demonstrate that you are ‘furloughed’ and not working at all, many contractors paid themselves a salary of £8,632 during 2019/20, equivalent to a mere £719 per month. Under the terms of the CJRS, they would be eligible to receive 80% of this amount per month – £575.
- The full details of both the SEISS and CJRS are due to be released shortly.
- Read this excellent article from the Ross Martin Tax Consultancy, which explains how limited company directors are affected by the COVID-19 business support measures.
A sign of future changes to come?
Those who watched Rishi Sunak announce the new scheme may have noticed his numerous references to fairness in the tax system – emphasising the fact that the self-employed pay less tax and this must somehow be made right after this crisis is over.
“I must be honest and point out that in devising this scheme – in response to many calls for support – it is now much harder to justify the inconsistent contributions between people of different employment statuses.
“If we all want to benefit equally from state support, we must all pay in equally in the future.”
In 2016, the then-Chancellor Philip Hammond announced an increase in NICs for the self-employed, before making a u-turn in March 2017.
It may be that in the future, the Chancellor will increase Class 4 NICs to match the Class 1 NIC rates applied to traditional employees. This, despite the fact that the ‘self-employed’ enjoy none of the benefits associated with ’employment’.
What COVID-19 measures are available to limited company contractors?
Although limited company workers are broadly excluded from the two headline COVID-19 support packages, the Government has announced a series of other measures that may help ease the financial pain many contractors will endure over the coming months.
- If you have a ‘payment on account’ to settle in July 2020, as part of the self-assessment process, this amount can now be paid in January 2021. A six-month interest-free payment delay. Naturally, you will still need to pay what is owed, just at a later date.
- Companies will not have to pay their next quarterly VAT installment. You still need to complete your quarterly VAT returns, but the next payment will not be taken. Again, the payment will be delayed, not cancelled. There is an excellent article on AccountingWeb which expands on this measure, and also warns that if your company has a direct debit in place, the tax will be still be collected, so you will need to take action manually.
- In May, the Government launched the Bounce Bank Loan scheme, whereby small companies can access loans rapidly, at preferential rates. Find out more.
- Try this COVID-19 Contractor Support Eligibility Calculator for a full list of potential support.
What about umbrella company contractors?
We are still awaiting the final details of the CJRS, and whether or not umbrella company contractors will be eligible. In the meantime, here is a useful summary of the situation from FCSA.