The financial support available to limited company contractors affected by Coronavirus
The last year has been a whirlwind for the self-employed and in particular, limited company contractors. From the IR35 private sector reform crescendo that collapsed into a last-minute delay to 2021, to the Coronavirus pandemic wreaking havoc with the UK labour market in general, we’re certainly living through unprecedented times.
The Government has responded swiftly to put rigorous financial support in place for employees, as well as implementing the Self-employment Income Support Scheme (SEISS) to pay sole traders up to 80% of their profits with a generous cap of £2,500 per month.
However, limited company contractors (or PSCs as HMRC refers to them) are stuck in the middle. Unable to claim the SEISS due to paying themselves via dividends and a salary, and with the Coronavirus Job Retention Scheme (CJRT) only covering 80% of their PAYE-applicable income – which isn’t usually much more than £700 a month – it’s easy to see why many contractors feel they have been kicked into the long grass.
So what financial help is available to limited company contractors through this difficult time?
Coronavirus Job Retention Scheme (CJRS)
Government guidance states that all UK employers with an existing PAYE scheme will be able to claim the 80% subsidy of wages up to the cap of £2,500 per employee per month.
Initially, there was some debate as to whether or not a contractor is an employee of their own limited company. However, this was soon cleared up by the Government, that confirmed the scheme “applies to salaried individuals who are directors of their own personal service company.”
That said, many contractors extract profits by way of minimal salary, with the greater part of their income made up by way of dividends. Given dividends aren’t counted in the CJRS, it will mean contractors can only claim 80% of their monthly PAYE salary which, as touched upon earlier, is usually little over £700 per month.
Coronavirus Business Interruption Loan Scheme (CBILS)
This allows limited company contractors to access to loans, overdrafts, invoice finance and asset finance of up to £5M for up to 6 years. These loans are secured up to 80% by the Government, that will also cover interest and fees for the first 12 months.
Recently, this scheme became more easily accessible following an announcement that lenders could no longer request personal guarantees for loans under £250,000. Of course, many people are still hesitant to take on debt to get through this crisis while employees are receiving help from the national coffers – but even so, these loans could prove important to contractors.
Statutory Sick Pay (SSP)
Contractors, as employees of their limited company, can claim Statutory Sick Pay for a maximum of two weeks if they fall ill or are self-isolating. Granted, at £94.25 a week it’s not much as far as paying the bills goes, but it’s an option to perhaps consider.
VAT bill delay
VAT payments due between 20th March and 30th June 2020 can be deferred, with all businesses (PSC contractors included) given until March 2021 to settle these.
Self-assessment payments delayed
For all self-employed – whether a limited company contractor or sole trader – the self-assessment payment on account due on the 31 July 2020 can be delayed until 31st January 2021.
Both of the above could prove important in giving contractors some breathing space for the next few months – although, it’s important to note that these are deferrals only.
Time to pay
Businesses that cannot afford to pay tax bills as a result of COVID-19 can approach HMRC and secure a ‘time to pay’ agreement, which would suspend debt collection. However, this isn’t a given and the tax office will want to discuss the specific circumstances.
If HMRC does agree, contractors will enter into an instalment arrangement tailored to the business’s needs and will suspend debt collection proceedings. The taxman will also cancel penalties and interest where the business has administrative difficulties contacting or paying HMRC immediately.
The Government has set up a dedicated helpline to support businesses and self-employed people concerned about not being able to pay their tax due to Coronavirus.
For more information, please visit the Government website. Alternatively, to hear how QAccounting, as one of the UK’s leading contractor accountants, can help support you through COVID-19, please request a callback – one of our friendly accountants will be in touch.
More Blogs
Challenges in Public Sector Finance: Income and Spending Gap
In December 2023, the Office for National Statistics announced that, in the first two thirds of the year, the deficit in public sector spending had reached £116bn. This figure was £27bn higher than the same period in the previous year. But why is the gap between income and spending in public sector finance widening? What are the implications? How can these challenges be addressed? Read on to find out…
The Future of Management Accounting
Gone are the days when management accounting simply involved bookkeeping and cost accounting. The business environment has become increasingly complex, and accounting firms and processes must evolve to keep up. But what is the future of management accounting? Read on for our top accounting trends – including the role of technology in accounting.
Understanding the Financials: Accounting for Amazon Sellers
It’s estimated that over 60% of sales on Amazon.com come from third-party sellers rather than directly from the e-commerce giant itself. With such a large captive audience here in the UK, it’s unsurprising that local sellers want a slice of this oversized pie. One thing to bear in mind is the specific set of financial challenges that come with a decision to sell via this platform. If you’re looking to understand more about the ins and outs of accounting for Amazon sellers, read on…