With the UK in lock-down due to the CoronaVirus (Covid-19) everyone is justifiably concerned about their jobs and their income.
In an unprecedented move the Chancellor, Rishi Sunak, has announced a raft of measures from mortgage holidays, deferment of tax payments as well as packages to pay 80% of people income (or £2500/mth).
As wide reaching as the measures are the contractor community is up in arms because we appear to have been left out in the cold.
Now, the details of these measures are still coming out and there is a great deal of confusion so what I’m about to write may well change going forward.
The two main packages are:
Now, the first of these aims to prevent companies from having to make their staff redundant by paying 80% of their salary up to a maximum of £2500. The employees must be ‘furloughed’ which basically means that aside from training they are not allowed to do any work for the company.
While this is pretty generous for employed staff, the self-employed were up in arms that they had been left out. While there were other avenues opened up, e.g. Statutory Sick Pay which the self-employed are not normally entitled to, these provided much less in the way of financial support.
It took a week for the Chancellor to present the second scheme aimed at the self-employed which offered the same 80% but this time over the average monthly profit as submitted in the previous three years tax returns.
The fly in the ointment is that these payments won’t be available until the beginning of June 2020 but the Chancellor insisted that other sources of funds were available from banks etc and combined with the other measures, e.g. mortgage holidays, this was the best that could be done.
All sounds ‘good’ what’s the problem?
Now, all that is unprecedented – the government stepping in to pay employee salaries and the lost income of the self-employed, but where does it leave the UK’s contracted workforce? In particular what about those who, like myself, operate through a Limited Company.
Well, many contractors consider themselves to be self-employed; after all the company is theirs and they employ themselves so they presumed that they would be covered by yesterdays announcment.
Reading the details of the Self-Employed Income Support Scheme it was quickly found that this would not apply to us;
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.HM Treasury and The Rt Hon Rishi Sunak MP (26th March 2020)
Most contractors operate in this manner, i.e. we pay ourselves a minimal salary and then withdraw dividends from the company profits.
For the avoidance of doubt, yes we do this because it is more tax efficient than taking a ‘proper’ salary. This does not mean that we pay no tax at all – far from it. My company pays Corporation Tax and Employers National Insurance while I pay my Personal Income Tax via self assessment.
With that out of the way let’s look at the Coronavirus Job Retention Scheme as directed above.
Well, it will pay 80% of the our salary up to a maximum of £2500 a month. But as contractors normally pay themselves a minimal salary, circa £700-800 a month, this won’t add up to much at all.
It should also be remembered that the payment is dependent on the employee being ‘furloughed’ and essentially forbidden from performing any duties. But as Directors of the company, how can we do that? Monitoring the bank balance, paying invoices, marketing, chasing new contracts – this is all work and would mean that we would not be eligible for this scheme anyway.
[This is at least the current advise from my accountant and from many other sources out there. It is however a point of contention so as I said at the start, it may be subject to clarification]
So why are contractors being “left out”?
Well, step back for a minute. Is it just us that can’t claim from these schemes? Have we being singled out because we’ve been kicking off about IR35?
No, we haven’t.
All company directors will be in the same boat – none are self-employed and none can be furloughed (if the current understanding is correct).
I was a director of another Limited Company some years ago – nothing to do with contracting, just a “regular” business. From what I understand if I was still there I would be as ineligible as I am now.
Think about the directors of the last clients you worked for (assuming it was a Limited Company and not another Contractor) – what’s their position?
If we want to keep the argument against IR35 alive we need to realise that we are no different from those other companies.
Yes, it sucks that everyone else seems to be getting bailed out while we aren’t – but that’s just how it is.
We’ve all had periods ‘between contracts’ and while I don’t look forward to them I do try to plan for them. I know that I can survive a few months with nothing coming in. It’s uncomfortable to watch the bank balance draining but at the end of the day but that buffer is there for a reason.
And here’s the kicker – and it won’t be popular
If we raise Mary Hell about this then we are eroding our argument about IR35.
If we demand to be treated differently to all the other Limited Company Directors out there – then we are essentially saying “we are not like those regular companies”.
When we get through Covid-19, and we will get through it, will we then start saying – “we are just regular companies so IR35 shouldn’t apply to us”?
My standpoint (for what it’s worth)
I don’t see myself as ‘self-employed’. I am a Director of and employed by a Limited Company – a legal entity in it’s own right.
That company provides services to others (end-clients) but I remain an employee of the company and not of those clients.
Even if I was able to furlough myself from my company, which current advice says I cannot, then it really would not be worth it from a financial standpoint.
I would much rather make the effort to keep my company afloat, to dig in and work through this – or at least ride it out.