Over the past few weeks, the UK Government has announced several measures to provide financial support to the businesses impacted by coronavirus. So far, the Chancellor’s announcements have included support for self-employed individuals or members of a partnership, but contractors operating through their own PSCs may be uncertain about what's available to them. Andy Vessey of Larsen Howie talks us through the financial support from Government that PSCs can access:
1. VAT deferment
VAT payments for the period 20/03/20 – 30/06/20 are to be deferred and businesses will be given until the end of this current tax year to pay any liabilities that have accumulated during the deferral period. Businesses may wish to consider issuing proforma invoices or requests for payment rather than a tax invoice as no tax point is created at this time. Although VAT will have to be accounted for once a tax point is created, issuing one of these documents at the relevant time may delay the requirement to account for VAT thereby assisting cash flow.
2. Self-Assessment interim payments on account 2019/20
For contractors who are required to pay a second interim payment on account for 2019/20 on 31/07/20 under Self-Assessment, they will have the option to push this back to 31/01/21.
3. Coronavirus Job Retention Scheme (CJRS)
Government guidance states that all UK employers with an existing PAYE scheme will be able to claim the 80% subsidy of wages up to the cap of £2.5K per employee per month. There is, however, is some debate as to whether or not a contractor is an employee of their own limited company; they would normally be classed as an officeholder, although HMRC’s criteria that the company should have an existing PAYE payroll scheme may be sufficient for a claim to be made.
That said, many contractors extract profits by way of minimal salary, with the greater part of their remuneration made up by way of dividends. This could present a problem – like in the case of full and part-time salaried employees, the employee’s actual salary before tax as of 28/02/20 should be used to calculate the 80%. Thus, where a contractor has been receiving a minimal salary, any eligible claim won’t be as great as £2.5k.
Wages of furloughed employees will be subject to Income Tax and NIC as usual. Total grant received under this scheme will have to be included in the PSC’s calculation of its taxable profits for C.T, although it will be able to deduct employment costs as normal.
4. Time to pay
Businesses with outstanding tax liabilities can ask HMRC for extra time to pay these by contacting the department. PSCs are somewhat unique in this situation as whilst they are a corporate vehicle, there is typically only one person earning fees as they would do if they were a sole trader. Yet, they don’t qualify for the Self-Employed Income Support Scheme and there is a question mark as to whether they qualify for CJRS. This needs to be addressed by the government post-haste as these businesses are caught in no man's land at present.
Because of the same degree of help being afforded the self-employed, the Chancellor did give a very strong hint that there may well be a levelling of the NIC playing field between rates for the self-employed & the employed. This, however, will only affect sole traders & partnerships who pay Class 2 and Class 4 NIC rather than Class 1 NIC.
5. Coronavirus Business Interruption Loan Scheme
This allows SMEs access to loans, overdrafts, invoice finance, and asset finance of up to £5M for up to 6 years. Loans are secured up to 80% by the Government and the first 12 months interest is covered by the government.
You can read more about this and other support for businesses during the coronavirus pandemic here.
About the Author
Andy Vessey is the Head of Tax at Larsen Howie. He has previously worked for HMRC as a tax inspector and is a qualified accountant. Larsen Howie is an online insurance broker that was established in 2015 and is based in rural Leicestershire. It is one of the UK’s leading providers of specialist insurances and IR35 advice to contractors, freelancers and consultants.