Rishi Sunak’s blind spot for limited company directors is staggering
Even before chancellor Rishi Sunak’s mini-Budget on Thursday, the future for personal service companies was not bright, writes Rebecca Seeley Harris, founder of off-payroll rules advisory Re Legal Consulting.
The changes to the off-payroll working rules in the private sector were already green-lighted for April 2021, following MPs tabling an amendment earlier this month to delay the rules for at least two years, but not succeeding.
Now we’ve got Mr Sunak’s summer economic update – the news could not be less summery for the flexible, professional workforce. In fact, HM Treasury’s current attitude towards PSCs is staggering. I say this as an adviser who once accepted their invitation to advise them on the IR35 legislation.
This chancellor is singling out PSCs, by giving them next to nothing
It’s a staggeringly poor show by HMT, and the government, because the chancellor’s all-clear for the IR35 changes come at a time when the people running these tiny companies are suffering -- just the same as everyone else.
Unlike a self-employed sole trader, the PSC director has deliberately been singled out by this government, to not receive government help at a time of national crisis (their primary way of paying themselves, dividends, is not covered by the furlough scheme). The sad truth is that the Treasury believes that PSCs are nothing more than a ‘tax-motivated incorporation’ and should, therefore, not receive help. That’s even though HMRC’s own research says that they aren’t.
Naivety that beggars belief
Just look at what the Treasury says in Rishi’s Plan for Jobs. Referring the postponement of the IR35 reforms from April 2020 to April 2021, HMT says:
“This means that businesses and individuals do not need to implement and adjust to the reform while dealing with the economic impact of COVID-19.”
As almost everyone even close to the contractor sector knows, this a very naïve statement to make. But, in many cases, the damage has actually already been done. Many of the larger businesses have already put in force a blanket ban on PSCs and shifted all their flexible workforce to umbrella companies.
The truth is -- it would be very foolish for businesses not to start preparing for this catastrophic piece of legislation in good time. In the lead up to April 2020, it was incredibly stressful and busy, with businesses frantically trying to put measures in place to be compliant. So, it would be best to avoid a last-minute rush; a repeat of the chaos (in the public sector before the April 2020 chaos), and be well-planned. It is still possible to work with PSCs, of course, but changes need to be made both operationally and contractually. Those changes mean the very ‘adjustments’ which HMT this week said needn’t be made, need to be made. This ‘it’s okay to do nothing’ stance beggars belief.
Set up your own company? Be abandoned, persecuted
Pre-empting what the government might say to all this well-founded criticism in response, it has to be that the Coronavirus Job Retention Scheme and the newly announced Job Retention Bonus Scheme (part of the CJRS), is there to support PSCs.
In truth, there is no reason why PSCs who furloughed themselves will not be eligible for the £1,000 bonus. But there is not enough information at present from HMT to put limited company directors’ eligibility beyond doubt. So far, it would seem that the PSC can receive the £1,000 in February 2021. Yet crucially, that’s just two months shy of the game-changing IR35 reform. So how much this £1,000 will help remains to be seen, as it will be right on the cusp of the off-payroll reforms being implemented in April 2021. Moreover, these reforms will hit PSCs a lot harder than a mere £1,000.
The feeling among most limited company contractors is, understandably, pretty downbeat. And that’s putting it mildly. I’m yet to really hear from a limited company director who doesn’t feel abandoned by the government. Or if not, persecuted.
The fallout is incoming
The chancellor keeps talking about ‘we are all in this together,’ in relation to the coronavirus. By ‘all,’ he must be excluding the many industrious men and women who have set up their own company to make a living. Some will get by on the small amount of work they can wrestle out of covid-19, or which they can tease out of the many clients risk-averse about IR35 reform. But many PSCs won’t and will fail. And even those who do survive will be storing up for the government an angry, hard-working swathe of the electorate who will surely return the favour at the next election of being totally singled out and left without.