These uncertain times will no doubt be causing a great deal of stress for many people, but for contractors, the continuation of the current lockdown – which the government has confirmed will now extend until at least mid-May – may be causing particular concern.
For those that aren’t fortunate enough to be able to continue working from home or are not designated as essential workers, it’s natural to be worried about what the future might hold. And while there are a range of measures from the government aimed at supporting people through these tough times, it may not always be clear to contractors which assistance they will be able to benefit from.
The answer may depend on what type of contractor you are, as the help that’s available may differ for limited company contractors, sole traders and those working under umbrella companies, so it’s important to understand how the schemes will apply to your particular situation.
How does the Coronavirus Job Retention Scheme help contractors?
One of the government’s flagship initiatives is the Coronavirus Job Retention Scheme (CJRS), which will see the state step in to pay 80 percent of an employee’s wages as a grant to the company, up to a maximum of £2,500 a month for each employee. The key criteria is that employees have no work to do because of COVID-19 and they will, therefore, become furloughed workers. The grant is paid to meet furloughed workers’ payroll costs and to enable the company to keep them on the payroll.
If you’re a director and employee of a limited company and pay yourself a salary, you can use this scheme. Provided you were enrolled and submitted an RTI payroll under the PAYE scheme by March 19th, you’ll be able to claim through the online portal for your salary only – dividends are not included. The government has set out guidance on how company directors can furlough themselves and what activities they can do during this period. Further guidance is available in our FAQS portal.
Those working under an umbrella company may also be eligible for support under the CJRS, as they are considered to be agency employees, but ultimately it is the umbrella company’s decision whether to furlough employees or not. In this case, any furlough needs to be agreed between the umbrella company – as the company that operates the PAYE – and the employee, so you should discuss this with your provider.
Sole traders are not eligible to make a claim under the CJRS scheme. However, they will benefit from the Self-Employment Income Support Scheme (SEISS).
What support is available for sole trader businesses or partnerships?
For those not eligible for the CJRS, the SEISS may be able to step in with a grant which generally offers the same level of financial support as the CJRS. Your grant is based on average earnings over the last three years ( as long as your annual profits do not exceed £50,000 annually) and is capped at a monthly limit of £2,500. It is open to anyone who earns the majority of their income from self-employment and has submitted a self- assessment tax return for the 2018/19 tax year. HMRC have advised that they will notify everyone who is entitled to the grant by mid-May 2020 with the intention of making payments in early June.
In the meantime, you can make a claim for Universal Credit while you wait for the grant.
Deferment schemes available to businesses
Although not grants as such, there are a number of tax deferment schemes in place that will assist businesses with their short term cashflow.
VAT liabilities due between 20th March 2020 and 30th June 2020 can be deferred to 31st March 2021. You do need to cancel your direct debit to take advantage of the scheme- otherwise, HMRC will take the payment as normal.
Payment on account deferment
Anyone who is required to make a self-assessment payment on account on 31st July 2020 can defer this payment to 31st January 2021.
Short term informal deferment arrangements with HMRC
These exclude the above voluntary deferments and cover VAT, PAYE, corporation tax and self-assessment.
This is currently in place to 30th June and HMRC have advised these be assessed on a month by month basis. You do need to liaise with HMRC to discuss these arrangements (unlike the above schemes) and the best advice is to request deferral arrangements before the tax becomes due.
Formal time to pay arrangements
If after three months you still require further time to pay, you can arrange a formal payment plan, over a longer period, to settle your outstanding liabilities.
The Time to Pay Service covers self- assessment, PAYE and corporation tax, though these should be arranged on a case-by-case basis.
You should call the Coronavirus Helpline on 0800 024 1222 if you can’t pay any tax bills because of COVID-19.
Can I claim any additional expenses now we are obliged to work from home?
If you are a limited company contractor and are forced to work from home through the lockdown, you can claim a number of expenses to help with the associated costs. These include any increased utilities costs as a result of working from home, such as heating, electricity and water together with business broadband, office stationery and any additional equipment you need, such as laptops, provided this is paid for by the company and is intended principally for business use.
What if I need more help?
The current situation has highlighted just how vital contractors are to the UK’s economy, but while this unprecedented level of support may offer some relief for contractors, it’s still unlikely to go far enough.
The package set out by the government likely won’t cover every expense or give contractors the reassurances they need to plan for the future, while there are numerous cracks that some workers may fall into. For example, those who have only just gone into contracting (so won’t qualify for the CJRS) and sole traders who have yet to complete a self-assessment are set to miss out on the SEISS scheme.
It’s also important to know who to turn to for advice. With so many people worried about their financial future, it’s an ideal environment for fraudsters looking to take advantage, so you should be wary of scammers offering unsolicited help with issues like tax schemes.
If you’re still struggling to maintain cash flow or meet your financial obligations, we’re here to help. Our FAQs can answer many of the key queries and concerns you may have about how to cope with the coronavirus crisis and our expert advisers are on hand to guide you through these uncertain times.