We are all well aware of the series of measures to support people, jobs and businesses during coronavirus, that Chancellor Rishi Sunak announced on the 20th March. From the Coronavirus Job Retention Scheme, the Coronavirus Business Interruption Loan Scheme, to the deferral of the next quarter of VAT payments. All in all, a pretty comprehensive package.
On the 26th March, the Chancellor went on to announce support for those who are self-employed, including a promise to pay self-employed people who earn up to £50,000 a year a maximum of £2,500 for the next three months (if the ability to earn an income has been adversely affected by the coronavirus). These payments will be made through a taxable grant worth up to 80% of the average monthly profits the individual has banked over the past three years – and will be payable in June.
But what about technology contractors – who tend to be either paid as a limited company (low basic salary but bigger dividends) or through an umbrella company (low basic wage and the rest paid through commission)? Where do they stand?
Well, it seems like none of these measures helps IT, contractors, out in any way as they are off-limits to limited company contractors. Contractors are already facing a tough time of it as well, with many already losing work due to the coronavirus outbreak or because many private sector companies have banned the use of limited company contractors as part of their compliance strategy for the IR35 tax avoidance reforms.
One thing that the pandemic has done, is to highlight the huge range of jobs, incomes and working arrangements among the 15% of the UK workforce who call themselves contractors. So far, the UK Government has chosen to roll out measures for those with the simplest tax affairs – businesses and self-employed sole traders who submit their tax return via self-assessment. The Chancellor said himself that he can’t protect every single job or save every single business, sadly.
Many IT contractors feel that they have been excluded from the Government’s measures at a time when things were already feeling bleak. Due to the IR35 reforms, many contractors were already facing the prospect of employment with zero rights, and now they are potentially facing months without work and with no support from the Government. Although they may class themselves as being self-employed, if they are a limited company contractor then they are technically classed as employees of their own company – which is one reason why the Government may have decided to exclude them from the help they have offered so far.
Yes, the Government has said that contractors can access support through the Coronavirus Job Retention Scheme, but this is unlikely to be a straightforward process. Even if they take the time to apply, and end up being able to qualify for this help, it will probably amount to very little income per month for them, and it may feel like it isn’t worth the amount of time they have spent becoming tax-efficient in the past.
There is a little bit of light at the end of the tunnel for some contractors, in that the Cabinet Office recently asked public sector bodies to avoid invoking force majeure into their contracts where possible – and has guaranteed that payments to contractors will continue as normal until the end of June. They have also pledged that if any work is suspended, they will pay contractors’ invoices immediately on receipt. However, these measures will only apply until 30 June 2020.
One can only hope that the Government is working away in the background to come up with some way to help IT contractors and those who are working as a limited company.
Our Managing Director, Jonathon Webley, is available to talk to if you have any questions about contracting or IR35. You can email him at firstname.lastname@example.org.