Two million could fall through cracks of self-employed support package
Those working for their own limited companies are particularly vulnerable, writes
MILLIONS of self-employed workers fear they have been forgotten after holes began to emerge in the Chancellor’s new support package.
Rishi Sunak announced on Thursday that most of Britain’s 5m self-employed workers will receive support from the Government in the form of 80pc of their usual earnings up to £2,500 a month – broadly in line with that offered to full-time employees. He claimed his measures will help 95pc of the self-employed, but some experts have estimated that as many as 2m people could miss out.
Among them are contractors who operate via a limited company and those who have recently become selfemployed. Those who are still building a business could also find they get far less support because their earnings have only risen in recent months.
Unions expressed concern that their members could fall through the cracks, while workers took to social media to point out the holes in the scheme.
One of the key issues for many will be the exclusion for those who work for their own limited company. Many contractors structure their affairs in this way in order to comply with tax rules and maximise their earnings. They are in effect self-employed. However, officially they qualify as an employee of their own company. They will take their earnings as a mixture of regular taxed salary and dividends from the company, usually skewed towards the latter to make use of tax allowances.
Mr Sunak’s self-employed support package excluded such workers, who instead can apply to the job retention scheme offered to full-time employees. However, as the level of support is calculated on regular taxable salary, this could leave many nursing a huge fall in income. Seb Maley, of insurance firm Qdos Contractor, said that because many contractors take the majority of their pay in dividends they would find much of their income is not eligible.
It is also not a foregone conclusion that contractors’ limited companies will be eligible for the job retention scheme, according to Rebecca Seeley Harris, of Re: Legal Consulting.
In a blog post on the Contractor UK site, she said: “Unfortunately, it is not an automatic assumption that you are an employee of your own limited company.” Some court judgments have suggested a sole shareholder of a company cannot be considered an employee.
The scheme will similarly disadvantage those who have recently gone selfemployed or are building their business. Eligibility and the value of payments will depend on previous tax returns. Those who have become self-employed in the current tax year will miss out, as they will not yet have filed a tax return.
This will also disadvantage those still building a business and investing heavily in its growth. The amount of earnings is based on average profit, so if much of the revenue has been reinvested then this will limit the support.
Sam Meadows