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COVID-19: Limited company (PSC) contractor guidance

Government assistance for limited company (PSC) contractors

Back in March 2020 as the COVID-19 pandemic began to unfold the Government outlined a range of financial support measures for businesses and employees to help them through the crisis. As time progressed and the ongoing impact of the pandemic were felt new measures were introduced and help and support offered to businesses and individuals was extended.

Further information regarding how these financial support measures applied to the self-employed was provided during the following week. However it’s important to note that limited company (PSC) contractors are not self-employed. They are instead limited company directors, employees and shareholders, therefore rules applicable to truly self-employed businesses do not apply to PSC Contractors.

The period since the pandemic started has been unprecedented, meaning we remain in a constantly evolving situation. Here are some of the headline support measures made available that may be of interest to contractors.

Throughout the period the government have continued to provide updated guidance and information. A useful summary of all available support measures can be found on GOV.uk. The page can be accessed here.

The COVID-19 Self-employment Income Support Scheme was launched to support those individuals operating as sole traders who had seen their trade impacted due to COVID-19. The scheme offers grants to these traders to help them recover lost revenue. The scheme is for those individuals who are operating as self-employed i.e. working as un-incorporated business under their own name or in a partnership. Unfortunately the scheme does not extend to individuals working through a limited company such as PSC Contractors.

Under normal circumstances SSP is not reclaimable from HMRC by an employer and therefore the cost of paying SSP is borne by the employer. This would be the case for SSP paid to directors and employees.

HMRC have announced they will change this and will allow small and medium-sized businesses with less than 250 employees to reclaim SSP paid for sickness absence due to COVID-19. A reclaim will be available in respect of SSP paid to all limited company contractors who are directors as well as employees. The reclaim will cover SSP for up to two weeks at a rate of £94.25 per week for directors and employees paid above the Lower Earnings Limit of £118 per week.

SSP will be for those who cannot work due to illness or self-isolation. The individual does not need to provide their employer with a fit note, however the employer is required to keep a record of all statutory sick payments ade for 3 years. The reclaim of SSP from HMRC can be made retrospectively for sickness periods from 13th March 2020.

Employers who need to claim SSP funding can make a claim online with the funds being paid to the employers bank account within 5 working days.

So for limited company contractors who have been affected through illness or self-isolation they can expect some funds in the form of SSP payable to them via their limited company which will be reclaimed from HMRC. If this does apply to you please contact your dedicated accounts team for further guidance.

The chancellor has clarified that “Those who pay themselves a salary and dividends through their own company are not covered by the (self-employed) scheme but will be covered for their salary by the Coronavirus Job Retention Scheme (CJRS) if they are operating PAYE schemes.”

So PSC contractors will be able to utilize the CJRS and claim a grant for up to 80% (up to £2,500 per month) of the directors (and any other employees) wage if the PSC has been severely affected by the COVID-19 crisis. This is limited to the wage and does not apply to company income or dividends.

Here are some key points regarding the CJRS and how it worked in its initial phase:

  • Affected directors and employees would be furloughed by the employer and whilst furloughed the persons could not carry out any work for the company. The only exception is that company directors may continue to carry out their statutory duties such as preparing or reviewing accounts and the filing of returns.
  • Employers will be able to use the new HMRC portal to reclaim 80% (up to £2,500 per month) of the wage, employers NI and minimum auto enrolment pension costs
  • The scheme is open to any employer who had a PAYE scheme on or before 28 February 2020 and the furloughed employee must have been on payroll before 19 March 2020
  • For directors and employees receiving a fixed wage, 80% of the salary they were receiving on or before 19 March 2020 can be claimed
  • For employees on variable pay:
    - If employed for a full 12 months – can claim the higher of the same months earnings from the previous year or average monthly earnings from the 2019-20 tax year
    - If employed for less than a year – can claim for an average of their monthly earnings since they started work
  • The furloughed wage will be taxable income subject to PAYE and NIC in the usual way
  • The grant payments when received must be accounted for as income for the company, the payment of the furloughed wage will be a deductible expense in the same way wages is and therefore this will leave a tax neutral position for the limited company
  • On the 29th of May the government announced the CJRS grants will be slowly tapered as follows, the headlines are below or click here for more information:
    - From August the government will continue to pay 80% of wages up to a maximum of £2,500 per month, employers will be required to cover the cost of employers national insurance and pension contributions, no contribution from the government will be available for these costs from August onwards.
    - From September the amount claimable for wage costs will be reduced to 70% up to a maximum of £2,187.50 per month, employers will be required to pay 10% of wages to make up 80% of pay up to £2,500 per month
    - From October the amount claimable will be further reduced to 60% of wages up to a cap of £1,875 per month, employers will be required to pay 20% of wages to make up 80% of pay up to £2,500 per month
  • The CJRS will close to new entrants from 30th June. This means grant funding will only be available for employees who have been furloughed for a full three week period prior to 30th June. So the final date by which an employer can furlough an employee for the first time will be 10th June. Claims for the grant funding for the period to 30th June must be made by 31st July
  • The government have stated from 1st July employers will have the flexibility to bring back to work furloughed employees on a part time basis – with the government continuing to pay grant funding for any of their normal contracted hours they do not work, and the employer being responsible for paying normal wages for the contracted hours the employee does work. It is not yet clear how this will work for limited company directors who do not work under a contract of employment with a set number of hours, further guidance is expected around this in due course.
  • On 31st October 2020 the government announced the CJRS scheme is being extended, the government have confirmed the scheme will continue until the end of March 2021.
  • For the duration of the extension the scheme will work similarly to how it previously operated.
  • It was confirmed the amount available to claim by employers for periods up to January 2021 will be 80% of the furloughed individuals salary. The government intended to review the economic circumstances and consider if the funding amount will be amended for February 2021 to April 2021. On review the full 80% funding was left unchanged for the months of February 2021 and April 2021.
  • The funding will not cover any employer costs such as employers national insurance and pension.
  • The employee must have been on the employers payroll on or before the 30th of October 2020 and the relevant RTI submissions must have been sent to HMRC prior to this date.
  • In his Budget 2021 speech made in March 2021, the Chancellor of the Exchequer Rishi Sunak confirmed the CJRS was again being extended to September 2021 to help protect jobs and help the economy recover through the roadmap out of lockdown.
  • The newly extended scheme will operate in the same manner as previously where the government will fund 80% of wages. The employer costs such as national insurance and pension would still need to be paid by the employer.
  • The scheme will continue in this manner until the end of June 2021, from July 2021, CJRS grants will cover 70% of employees pay, this will then change to 60% for August 2021 and September 2021.

On 27 April 2020 the Chancellor announced the introduction of a new fast track loan scheme for small businesses. The scheme, which promises vital cash injections to keep small businesses operating, offers loans of between £2,000 and £50,000 with a 100% guarantee for lenders by the Government. The maximum amount a business can borrow is up to 25% of the business turnover or £50,000, whichever is highest.

The key features of the loan are:

  • No repayments are required for the first year
  • Interest free for the first 12 months
  • Affordable 2.5% rate of interest per annum applies to the remainder of the loan term
  • No fees charged on arrangement
  • Loan term available of up to 6 years (early repayments are allowed)
  • In September 2020 it was announced businesses will be given the option of repaying their loans over a period of up to 10 years
  • Businesses can also move to interest-only payments for periods of up to 6 months
  • Or take a payment holiday of up to 6 months

Loan applications opened on 4th May 2020, you apply online via a short, standardised application. Unlike the existing Coronavirus Business Interruption Loan which has been slow in being taken up, only 80% guaranteed and geared towards larger businesses, there will be no forward-looking test of business viability and no complex eligibility criteria.

These loans are aimed at small to medium sized businesses who need a quick cash injection to help deal with the negative impact of COVID-19. The loan can be used to pay any ongoing businesses running costs, however the loan cannot normally be used to pay dividends to the shareholders.

How to apply

The loan can be applied for online directly to any of the participating lenders which are listed here. You can then approach a suitable lender via their own website.

For VAT due in this period businesses were initially given the option to defer payment of their VAT bill until 31st March 2021. This VAT deferral was applied automatically for all businesses. HMRC continued to pay VAT refunds in the usual manner.

It had been emphasised that businesses must continue to file their VAT returns even though though they may decide to defer payment.

In the Winter Economy Plan by the chancellor in September 2020, the government announced further time for businesses to pay the deferred VAT bill. The business could either pay the amount deferred in full by 31st March 2021 or as an alternative agree to pay the deferred amount in up to 11 monthly instalments. In February 2021 HMRC launched the online tool to agree payment plans and have given businesses until 21st June 2021 to agree a payment plan under the deferral scheme.

Individuals within the Self Assessment system who have a personal tax liability in excess of £1000 for a tax year are required to make a payment on account of the same amount for the following tax year. So, if you had a tax liability of £5000 for the 2018/19 tax year you would be required to make a payment on account for the 2019/20 tax year of £2500 on 31st January 2020 (which you would have paid by now), and a further payment on account of £2500 on 31st July 2020. It is this second payment on account which was deferred until 31st January 2021.

From the changes announced in September 2020 it was confirmed more time will be allowed for tax payers to pay taxes due in January 2021, which builds on the deferral provided in July 2020. Taxpayers with up to £30,000 of Self-Assessment liabilities due will be able to use HMRC’s self-service Time to Pay facility to secure a plan to pay over an additional 12 months.

No interest or penalties for late payment will be incurred for the deferred period.

Additionally, following the ongoing pandemic HMRC notified taxpayers they will waive the initial penalty that would have applied for not filing their 2019/20 tax return by 31st January 2021 for one month, in effect this meant tax payers had until 28th February 2021 to submit their tax return without incurring a penalty.

All businesses and self-employed people in financial distress and with outstanding tax liabilities may be eligible to receive support with their tax affairs through HMRC’s Time to Pay Service. HMRC have explained that these arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities. They have also affirmed that their objective remains to support viable businesses by giving them the time they need.

So for any limited company director who has concerns over the payment of a Corporation Tax liability, or one involving PAYE/NIC payments which are due or may become due, they are encouraged to discuss the problem direct with HMRC’s Time to Pay team.

Contractors who have been involved in Loan Schemes and are in the midst of a settlement plan may wish to contact HMRC if they are, or are likely to have, difficulties in meeting the agreed payments due to the COVID-19 impact on their income.

For all issues involving time to pay tax liabilities contact the dedicated HMRC helpline number is 0800 024 1222.

Keeping our contractors informed

For individuals who are self-employed, such as our SME clients and CIS contractors, please see our self-employed guidance page.

We are still navigating the new legislation regarding SSP and CJRS in regards to our umbrella company contractors, as it’s not clear in the guidance as to how this will apply to those individuals. As soon as we have more clarity we will update accordingly.

We appreciate that this is a difficult and challenging time for everyone so we will endeavour to keep you updated on all the latest developments as events unfold. Our preferred method of communication during this time is email so if you’re an existing limited company contractor please email your dedicated accounts team or email PSCmail@paystream.co.uk

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