Coronavirus Job Retention Scheme: what limited company contractors need to know

The word ‘furlough’ is familiar to PSC contractors, so hearing the government utter it on Friday in relation to the Coronavirus Job Retention Scheme, under which 80% of an employee’s wages get paid, led to hopes that such limited company workers were included, writes Rebecca Seeley Harris, founder of status advisory ReLegal Consulting.

For the uninitiated, the CJRS is available to all UK businesses so all UK employers will be able to access support to continue paying part of their employees’ salaries for those employees that would otherwise have been laid off -- made redundant -- during this outbreak of COVID-19.

How to access the Coronavirus Job Retention Scheme

To access the scheme, the employer will need to designate affected employees as ‘furloughed workers’ and to notify the employees of this change. Changing the status of employees, however, remains subject to existing employment law. It will depend on what is included in the contract of employment, and it may be necessary to agree a mutual change to the contract or to negotiate a change.

As most contractors tend to know (whether umbrella or PSC), a furlough is a temporary break with a ‘no work’ rule. Sending an employee home is not a furlough, nor can a furloughed employee do bits and pieces, or work here and there. Instead, they must be totally off work.  If you (as an employer, whether you’re a tiny consultancy or a growing start-up) are also looking at redundancy as well as furlough, then you need to follow a fair process for selection.

Next, the information should be submitted to HMRC about which employees are being furloughed and their earnings through a new online portal. The Revenue will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. The department is working to set up a system for reimbursement, because existing systems are not set up to facilitate payments to employers.

Limited companies and CJRS eligibility

A few questions have arisen around the Coronavirus Job Retention Scheme but, as referred to at the outset, the most burning one is: ‘Am I, an employee of my own limited company, eligible to claim under the CJRS?’

Unfortunately, it is not an automatic assumption that you are an employee of your own limited company. 

I first wrote about this 20 years ago for Contractor UK and the subject is still as valid today. There has been case law on this over the years, but it has been conflicting. In Secretary of State for Trade and Industry v. Bottrill [1999] EWCA in the Court of Appeal, the court held that Mr Bottrill was an employee of the limited company on the facts.

A year later, however, in Farleigh v. Secretary of State for Trade and Industry [2000] EAT in the Employment Appeal Tribunal, it was decided that a sole shareholder could not be an employee of his own limited company for the purposes of a redundancy payment from the National Insurance Fund.

Hallmarks of employment

So it is far from clear. But there is some guidance on establishing your employment status:

  • Is there a genuine contract of employment between the director and the limited company?
  • Was a ‘statement of written particulars’ issued?
  • What did each party do in pursuance of the contract?
  • Does the contract actually give rise to an employment relationship?
  • How was remuneration accounted for as fees or wages?
  • How and for what reasons did the contract come into existence (for example, was the contract made at a time when insolvency was foreseeable)?

It is likely that there will be stringent anti-fraud measures so contractor business-owners should be warned not to abuse the system, as this would be profiteering from a national crisis. It is likely that there will be heavy penalties for those that are found out.

PSCs held at an amber light, for now

Any green light by the government for limited company directors to be covered by the CJRS is held up by the problem that whether you are employed or not is down to the individual facts of your own unique set-up and working practice.

In conjunction with this article, I know that ContractorUK approached HMRC for clarification as to contractors’ eligibility for the scheme, only to be told that -- quite apart from any green light for PSCs to go forward to use it, it’s really an amber light:

“The details are being worked up as fast as possible,” the HMRC spokesman said. “We’ll be able to share them with you when they’re ready.”

Amid other advisers calling PSCs’ inclusion in the scheme “doubtful,” and as the Independent Workers Union is suing over what it sees as a red light for self-employed people to benefit from the government’s coronavirus support measures, I don’t feel very hopeful. In fact, unless the chancellor makes a positive statement specifically about limited company contractors and the CJRS, such workers are unlikely to be included in either this measure -- clearly intended for the employed, or the few scant measures intended for the self-employed.

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Written by Rebecca Seeley Harris

Rebecca is a leading expert in ‘employment status’ and IR35 and the law involving independent contractors and the self-employed for the purposes of tax and employment law. Rebecca has run her own consultancy for the past 20 years covering all employment status issues such as off-payroll in the private and public sector, otherwise known as IR35, s.44 and any issues affecting the self-employed and personal service companies.
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