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COVID-19: Contractors and the Job Retention Scheme

Contractors unable to work as a result of the coronavirus epidemic may be able to access relief courtesy of the Job Retention Scheme (JRS) or an equivalent measure currently being discussed within the House of Commons, depending on their trading model.

Government measures introduced to support businesses and employees while preventing redundancies were met with criticism last week when it became apparent that similar provisions had not been made for the self-employed.

However, a notion for ‘statutory self-employment pay’ has been tabled within the emergency Coronavirus Bill, requiring that Government ‘top up’ the earnings of self-employed workers at the same rate afforded to employees.

How does the Job Retention Scheme work?

A significant incentive to keep employees on payroll, preventing redundancies, the JRS offers employers a grant of up to 80% of each employee’s wage for all employment costs, up to a cap of £2,500 per month. Whether the employer chooses to top-up the furloughed wage to 100% is up to their discretion.

The scheme is only available to those designated as ‘furloughed’ workers by employers, and who do not undertake any work whatsoever for the company during the period in question.

Crucially, the JRS covers all workers paid via Pay As You Earn (PAYE), meaning umbrella company contractors and those working via an agency payroll could qualify. It remains to be seen whether the calculation of furloughed pay is to incorporate bonus payments made or basic pay alone, the latter of which could prove problematic for umbrella contractors who receive the majority of their remuneration through ‘bonus’.

In an attempt to minimise the ongoing financial effects of the coronavirus, payments will be made as grants, and therefore will not be subject to income tax and National Insurance Contributions (NICs).

The scheme covers the cost of income backdated to 1 March 2020 and is intended to run for three months. HMRC is currently in the process of developing an online portal through which employers can apply for the JRS.

Proposals could offer self-employed similar protections

Whereas the self-employed are excluded from the JRS, Government is considering measures to introduce a similar relief that could be made available to limited company contractors.

The Coronavirus Bill 2019-21 - in the committee stage in the House of Commons at the time of writing – sets out plans for the provision of statutory self-employment pay. The Bill proposes that payments made constitute whichever is lowest out of:

  • 80% of the individual’s monthly net earnings (averaged over the last three years)
  • £2,917

Though further details regarding the proposal for statutory self-employment pay are yet to emerge, it is believed this relief would only be available to those who are not undertaking any other work during the period in question.

Dave Chaplin, CEO of ContractorCalculator says: "Whilst there is undoubtably going to be hardship amongst the self-employed, including contractors, freelancers and locums, the brutal reality is that one of the key aspects of case law which defines someone as being self-employed is a lack of mutuality of obligation - which means the self-employed only get paid for work done. They do not have guaranteed pay, but do invariably get paid more, and those entering contracting with eyes wide open acknowledge this risk which typically accompanies higher pay than their permanent counterparts.

"What is very much apparent now though is that HMRC's concept of deemed employment ("IR35") in it's current form, which leads to zero-rights employment, is fundamentally flawed and shown now for what it is - grossly unfair. HMRC have now lost the argument on fairness, and it seems highly unlikely that the Off-Payroll Tax will enter statute in April 2021 in it's current form."

Published: 24 March 2020

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