Government support for the self-employed update: What you really need to know as a contractor

Over the last 12 weeks of lockdown, there’s been a whole lot of unclear advice and direction, including the government financial support options made available to the UK workforce. While employees received furlough payments as standard, the self-employed had no single clear choice that accommodated their unique working situations. Limited company contractors were amongst the worst hit, with many options not even going halfway to covering their usual rates and many more not comfortably qualifying for any help at all.

Now that lockdown is easing, the government has again amended its financial support for the self-employed. This is what you need to know as a contractor.

CJRS UPDATE MEANS LESS SUPPORT FOR LIMITED COMPANIES

Planned changes to the current Coronavirus Job Retention Scheme (CJRS) were posted to the government’s dedicated page on June 12th and detailed how the current level of support was to be retracted in stages from 1st July.

This new iteration of the furlough scheme has been dubbed ‘flexible furlough’ and is intended to help employees back into work. Employers will be asked to contribute towards their employees’ wages, which will replace a portion of the government’s payments to cover those salaries. Furloughed employees will still be entitled to 80% of their usual income (capped at £2,500 per month).

On June 30th, the original furlough scheme will be closed to new entrants. From July 1st, this new furlough scheme will come into effect. However, only workers who were furloughed before June 10th under the original scheme are entitled to support through the new one. Employers will also be able to bring employees back on a part-time basis from July 1st, with the new furlough scheme covering up to 80% of their usual wage for any contracted hours not worked.

By July 31st, employers must have submitted any claims made under the original version of the CJRS for the period previous to June 30th. From August 1st, Employer NICs and pension contributions on furloughed salaries will no longer be covered by the CJRS. The percentage of government support will then be decreased in 10% increments on September 1st and October 1st, meaning employees will have to increase their contributions to maintain the 80% salary coverage at the start of each month.

WHAT DO THE NEW CJRS RULES MEAN FOR LIMITED COMPANY CONTRACTORS?

Of course, a limited company contractor is simultaneously the employer and employee in the context of the CJRS, having been effectively furloughed from their own limited company due to lack of work. This makes the support much more complicated – and much less helpful – for the self-employed who don’t have a better option to take.

It’s the contractor’s own company that will foot the bill while they are furloughed to meet those reduced levels of support. However, if a furloughed contractor takes on work, they’re generating profit for their business which would negate any eligibility to claim the support through the furlough scheme in the first place.

That said, the flexibility of the new scheme could be of use to contractors if end-clients engage them on a part-time basis. That would potentially be a way for businesses to control their costs while restarting projects important to delivering services and innovation while consumer demand remains low as the UK economy starts to fire up again.

CIOT CONCERNED ABOUT NEW HMRC POWERS OF RECOVERY FOR CJRS PAYMENTS

As part of the June 12th update, it was announced that grants paid under CJRS, the self-employment income support scheme (SEISS), and other schemes specified in the draft legislation will be taxable. HMRC will have the power to recover payments, by means of a 100% tax charge, from anyone who receives a payment to which they are not entitled. This is well-intended to stop fraud but unfortunately means that contractors may once again fall foul of unclear government guidelines.

HMRC’s guidance has been “constantly evolving, which makes it difficult for people to keep up to date with changes,” the CIOT said in a submitted response to the announcement, which came after a 14-day consultation on draft legislation that is set to be added to the finance bill.

The CIOT submission raised several technical questions concerning taxation of payments under the CJRS and the SEISS, and it called for a review of a proposed 30-day time limit for notification of liability to the new charge.

“Some of what is being added to the guidance may well impact on claims that have already been made,” they said. “For example, we understand that HMRC is planning to provide more guidance on what is meant by ‘adversely affected’ by coronavirus for the purposes of working out eligibility for the SEISS.”

A person who has already received a payment on the understanding that they were eligible at the time of their claim “may subsequently feel they should not have claimed on the basis of HMRC’s updated guidance,” the CIOT continued.

We’ll be updating as changes occur.