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Coronavirus: IT contractors ‘left stranded’ by exclusion from support for self-employed

IT contractors who provide services through their own limited companies will not be able to access government scheme to support self-employed through coronavirus outbreak

The government stands accused of leaving IT contractors “out in the cold” by denying limited company contractors access to financial measures designed to support the self-employed through the Covid-19 coronavirus outbreak.

In an address to the nation on Thursday 26 March 2020, the chancellor, Rishi Sunak, outlined details of a support package the government will roll out to help self-employed people through the pandemic.

This includes a promise to pay self-employed people who earn up to £50,000 a year a maximum of £2,500 a month for at least the next three months, if their ability to earn an income has been adversely affected by the coronavirus.

These payments will be made possible through the provision of a taxable grant worth up to 80% of the average monthly profits these individuals have banked over the past three years.

“To make sure only the genuinely self-employed benefit, it will be available to people who make the majority of their income from self-employment,” said Sunak.

“And to minimise fraud, only those who are already in self-employment, who have a tax return for 2019, will be able to apply.”

Anyone who is yet to submit their latest tax return  will have four weeks from 26 March 2020 to send one in to ensure they can access the financial support offered through the scheme, which should start making payments to people “no later” than early June, said Sunak.

“If you are eligible, HMRC will contact you directly, ask you to fill out a simple online form, then pay the grant straight into your bank account,” he added.

In the meantime, self-employed people who are already struggling with a downturn in their income can access business interruption loans, and apply to receive Universal Credit payments, said the chancellor.

News of the Self-Employed Income Support Scheme has been broadly welcomed by trade bodies and other contracting stakeholders, as the government has come under growing criticism in recent days for not doing enough to support the self-employed through the coronavirus outbreak.

However, there are concerns that anyone who is relatively new to self-employment will not be able to access the support measures, and it is also off-limits to limited company contractors, which could have huge implications for IT contractors across the UK, particularly those who have already lost work because of the coronavirus outbreak, or as a result of private sector organisations banning the use of limited company contractors as part of their compliance strategy for the now deferred IR35 tax avoidance reforms.

In guidance issued by the government in the wake of Sunak’s speech, it was confirmed that “those who pay themselves a salary and dividends through their own company” are not covered by the self-employed support scheme, but can apply to have their salary covered by the Coronavirus Job Retention Scheme.

Read more about coronavirus and IT contractors

Dave Chaplin, CEO of IR35-focused tax consultancy ContractorCalculator, said limited company contractors had effectively been “left out in the cold” by the government’s response to the coronavirus crisis, but he welcomed the support being offered to the self-employed sector in general.

Even so, Chaplin queried why the government has decided to deny access to the scheme to any self-employed people who earn more than £50,000 a year, and said it effectively means they are being penalised for being good at what they do.

“It seems grossly unfair that employees of all incomes are covered up to £2,500 per month by the Job Retention Scheme, yet high-earning contractors and all those who are incorporated are penalised during a time of national crisis simply because they excel at what they do,” he said.

“Before the roll-out of the off-payroll [IR35] legislation was postponed, many legitimate contractors were bracing themselves for the prospect of ‘zero rights employment’, courtesy of the draconian legislation. The prospect of months without work and zero support from government is, arguably, much worse.”

Although many limited company contractors consider themselves to be self-employed, they are technically employees of their own companies, said Seb Maley, CEO of IR35 consultancy QDos Contractor, which may go some way to explaining the government’s rationale to exclude them.

“This [scheme] is a generous measure that millions of self-employed people will benefit from, but it doesn’t work for everyone,” he said. “For example, those new to self-employment have been left stranded, while anyone who works through their own limited company has also been ignored.”

And although they can access support through the Coronavirus Job Retention Scheme, this is unlikely to be straightforward, he added.

“Even if a contractor was to jump through the hoops needed to qualify, the likelihood is that they could claim very little each month,” said Maley. “It’s as though genuine contractors have been punished for choosing to work tax-efficiently.”

Derek Cribb, CEO of the Association of Independent Professionals and the Self-Employed (IPSE), described the Self-Employed Income Support Scheme as a “historic lifeline of financial aid” for the self-employed, but said more is needed to ensure the needs of all self-employed and freelance workers are covered.

“We will keep working to fill in these gaps,” said Cribb. “With our mission to support and promote the work of independent professionals and the self-employed, we will keep striving to stop those in need from being left behind.”

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