Covid-19: contractors ‘fall through cracks’ in support

Contractors and others who work through personal service companies (PSCs) fear they risk being left without government support for lost earnings as a result of coronavirus, because they do not meet the requirements of current support schemes

Earlier this month the government announced Coronavirus Job Retention Scheme to underwrite 80% of the salaries of workers paid via PAYE if they have to be temporarily laid off, while Chancellor Rishi Sunak has now unveiled similar measures for self employed taxpayers, who will be able to apply for a taxable grant of up to 80% of their profits. 

Brian Palmer, tax policy expert, AAT, welcomed the support for the self employed, describing it as ‘very generous indeed, particularly as those eligible will be able to continue working and yet receive the grant’.

‘However, there are still many pressing concerns for those who do not qualify due to being self-employed for less than a complete tax year and have not yet filed a tax return, therefore having no profits to average,’ he said. 

This would apply, for example, to individuals who have dissolved a limited company and become a sole trader, potentially in response to looming changes to IR35 rules.

Palmer said: ‘Finally, there were also no crumbs of comfort for those who are self employed from every perspective but provide their services through a limited company, many of whom draw a low salary and top up their income with dividends.

‘They will not qualify as self employed or for a significant payment from the Coronavirus Job Retention Scheme.

‘Instead, they risk dropping through the cracks.’

This point is echoed by Philippa Childs, head of Bectu, the trade union which represents many film and TV technicians and others in the creative industries.

Childs said: ‘Bectu has pushed incredibly hard for freelancers and the self employed to have parity with employees and the scale of the chancellor’s announcement clearly sets out to achieve that.

‘However, we will not stop and there are still many details to work through including how those who have paid themselves through dividends will fit into this scheme and also the time-scale.’

Asked directly about people who operate PSCs and pay themselves a mix of a salary and dividends, an HMRC spokesperson said: ‘People who are paid a salary by PAYE can be furloughed for the Job Retention Scheme but dividends are not covered by that or the self employed scheme.’

Part of the reason for this is believed to be the difficulty for HMRC in establishing whether dividend payments are the result of payment for work, or from passive investments.

Joanne Harris, technical commercial manager at SJD Accountancy, said: ‘Given that the majority of these workers pay themselves a monthly salary of around £719, it’s clear that PSC workers have simply been left behind and are now facing the harsh reality of just £575 a month in financial support from the government.’

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Comments

I agree it's a huge gap. Regarding the "difficulty for HMRC in establishing whether dividend payments are the result of payment for work, or from passive investments", it's presumably straightforward to make sure that only dividends from close companies are taken into account. Any abuse can be dealt with as normal.

The government has already shown a willingness to protect the self-employed, and this is almost certainly an unintended oversight.

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