Contractor sector largely unmoved by furlough job retention scheme extension

A surprise extension yesterday of the Coronavirus Job Retention Scheme fails to take into account limited company contractors, and may even cost them money from August.

But chancellor Rishi Sunak’s extension of the scheme until October 2020 does take into account just how long the government clearly believes the effects of covid-19 will last.

In fact, by extending the scheme for four more months, it shows “the recovery from coronavirus is clearly going to be long and slow”, warns Orange Genie’s Helen Christopher.

It also shows “there is no quick fix” to the virus, as extending the CJRS to Q4 may mean the government expects a “relapse” in recovery from infections, fears Liberty Bishop’s Stuart Marquis.

As to the numbers of the scheme, which costs £14billion a month, accountant Claire Stewart says the extension is “very grim for the economy” as “we will be paying for this for decades”.

'Start sharing the cost of your furlough salary'

More immediately, the scheme is grim for furloughed PSCs. Not only does the extension exclude their dividends, but it might also require them to part fund their furloughed salary.

Pointing to August 2020, Mr Sunak said: “To support the transition back to work, employers…will be able to bring furloughed employees back part-time. And we will ask employers to start sharing with the government, the cost of paying people’s salaries.”

“In the PSC space as far as the CJRS is concerned, the employer is the PSC,” explains Orange Genie's Ms Christopher, the firm's operations director.

“It is the contractors who appear on the RTI [returns] of their PSCs, not engagers. We await more details but we don’t expect that engagers will share the cost; they are not the employer.”

'Whichever entity deducts the PAYE will contribute'

Lawyer Emma Bartlett confirmed to ContractorUK that it is the limited company which stands to be affected by the pledged “greater flexibility” for the CJRS, as far as PSC contractors are concerned.

“[The ‘employer’] will be whichever entity is responsible for deducting PAYE from the wages paid to the contractor,” said Bartlett, a partner at Charles Russell Speechlys, in a reading that indicates umbrellas and agencies will be required to contribute to furlough salaries too.

However, HMRC does not have statistics available on CJRS usage by different sectors, or customer types, a Revenue spokesman said yesterday, responding to questions from ContractorUK.

'CJRS wasn't written with contractors in mind'

For umbrellas from August though, a key issue is how brollies can turn a profit and thereby contribute to the CJRS if their contractors are not out on assignment generating income.

An adviser to umbrellas and PSCs, which raised the issue, also said: “What has become apparent is that this scheme was not really written with ‘Ltd’ contractors in mind, let alone the contractor sector as a whole.”

In agreement is IR35 expert Rebecca Seeley Harris. “There has been incredible generosity from the government for furloughed employees.

“But unfortunately this has not extended to directors of a company,” she said last night, adding:

“[So] it’s going to be interesting to see from August how the employer in a PSC will be able to contribute a percentage towards the salary of the director.”

'PSCs can still ask clients for financial support'

“The technical rules about this will be provided by the end of the month,” explains Jo Handler, employment law specialist at Brabners.

“But as the furlough scheme is generally run through the employer, that would suggest [the] contributions would technically need to be paid by the limited company”.

Such PSCs may still seek “financial support” from an end-user though, she said, and clients will more likely help out with the salary contribution of those PSCs who return from furlough to do work part-time, as Mr Sunak floated.

'Chancellor will face further pressure'

Yet this could all be avoided if the government would only make its support for furloughed contractors more adequate, suggested Qdos chief executive Seb Maley.

“Many contractors will be wondering why the government hasn’t yet rolled out support that takes into account those who pay themselves via salary and dividends,” he says.

“Given the scheme has now been extended, the chancellor will likely face further pressure to offer significant support to contractors in the coming months.” 

'Won't sit comfortably with contractors'

Asked if contractors’ CJRS petitions demanding to be put on a par with employees have IR35 implications, the status advisory boss said they might. At least for one government department.

“In HMRC’s eyes, perhaps,” Mr Maley said. “However, we need to stand back and take into account the unique circumstances we find ourselves in.

“Like employees, contractors pay tax, make an important contribution to the economy while, more often than not, they work compliantly with the IR35 legislation.”

He added: “For the government to all but ignore them -- when it has said its mind is already made up on IR35 reform -- won’t sit comfortably with a lot of contractors.”

'Sunak didn't really respond on dividends'

At contractor accountancy firm Intouch Accounting, head of client services Patrick Gribben reflected this morning: “The chancellor yesterday committed to maintaining the current level of support in so far as workers can expect still to receive 80% of their salary for periods that they are furloughed

“And he was asked a question about those working through limited companies and taking income comprised of salary and dividends, but answered that they can currently use the CJRS to make a claim for support with the PAYE element of their income.

“So he didn’t really respond on the inclusion of dividend income, other than to say that he would keep all economic support measures under review.”

'Fallen through the cracks'

Unsatisfied, a limited company contractor reached out to Mr Sunak on Twitter: “We would like your attention as many of us have fallen through the cracks of the system.

“Change the furlough requirements so we also get some help please. We are the taxpayers out of options.”

An even more dejected PSC worker echoed, tweeting the chancellor: “I've been a viable limited company for almost six years. [But I’m] receiving [practically] zero [coronavirus] aid now and feeling very disappointed in this government. Why run a business in the UK?”

“Full details will follow by the end of May,” Mr Sunak told the House of Commons. “We stood behind Britain’s workers and businesses as we came into this crisis. And we stand behind them as we come through the other side.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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