Contractors' Questions: Am I due COVID-19 financial support if my public sector client is terminating me?

Contractor’s Question: I’ve been a PAYE umbrella contractor with an arm’s length transport body via an agency for nearly two years. But due to all projects being stood down, my contract is being terminated. It’s hard to understand if someone in my situation can claim any of the government’s COVID-19 financial support. I still have an ‘active’ limited company, but it’s had no income for over two years. Please advise if aid is available to me.

Expert’s Answer: In this scenario, it’s the transport’s body’s choice as to whether they will continue to pay you, as per the government’s guidance notes for paying ‘Contingent Workers’ during the COVID-19 crisis.

While contractors engaged in the private sector do not qualify for the Self-Employment Income Support Scheme (SEISS), and can only claim 80% of PAYE salary under the Coronavirus Job Retention Scheme (CJRS), there are different rules for contingent workers (PSC contractors, umbrella and agency PAYE workers), in the public sector.

Last week, it was announced that all “Central Government Departments, their Executive Agencies and Non Departmental Public Bodies” would pay 80% of a contingent worker’s “pay rate” up to a maximum of £2,500 per month -- if they can’t work because of COVID-19, whether that’s due to sickness, self-isolation or the temporary closure of offices.

This support is similar to the CJRS, although it differs slightly given that it is based on the total “rate” rather than PAYE. It applies to those working with the government, along with contractors engaged by the likes of the NHS. However, public sector bodies other than central government departments, their executive agencies and non-departmental public bodies are only “encouraged” to offer this support. It’s not an obligation and it is left to the engager’s discretion as to whether they cover their contingent workers with this financial aid.

It’s also worth noting that you’re only entitled to this support up to the point at which your assignment is due to end. If, for example, your contract was to finish next week, your public sector client is under no obligation to offer support past this.

Based on the assumption that you are not covered, and neither party has been in touch with you, it may be worthwhile to get in touch with the public sector authority, or the agency as your fee-payer, to receive clarification as to whether they will adopt the government’s guidance for contingent workers in the public sector.

In the meantime, it’s worth considering again the CJRS. Although be aware that, as noted previously, the government will contribute 80% up to £2,500 of PAYE earnings only. Given many contractors draw a PAYE salary that falls under the taxable threshold (around £700 per month), you may only be eligible to claim 80% of this, should you first reclassify as a ‘furloughed worker’ of your limited company. While it’s better than nothing, this clearly isn’t enough to live on for the vast majority of contractors.

Our general view is that the government has done the right thing in supporting some public sector contractors -- with many of those vital in the fight against COVID-19. However, by not making this support mandatory for all public sector workers, potentially including yourself, along with many other public sector and private sector contractors, chancellor Rishi Sunak continues to overlook hundreds of thousands of independent workers. It’s as a result that a number of petitions have been created, urging the government to reconsider and include in their financial support packages through coronavirus, those individuals who pay themselves a salary and draw dividends from their own companies.

The expert was former tax inspector Nigel Nordone, head of tax at Qdos.

Thursday 9th Apr 2020
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Written by Nigel Nordone

Former HMRC Inspector, Nigel Nordone, is Qdos Contractor’s Head of Tax. He has specialised in IR35 since its inception in 2000 and has successfully represented numerous contractors in IR35 enquiries. 

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