Coronavirus: contractors not covered by UK's new self-employed payments

Under the new self-employment income support scheme (SEISS), self-employed people who have lost income due to the coronavirus will be entitled to claim a taxable grant worth 80% of their trading profits up to a maximum of £2,500 per month for the next three months. The scheme will not be up and running until June and those eligible will be contacted by HM Revenue & Customs (HMRC) and asked to apply.

Those who pay themselves a salary and dividends through their own company will be covered for their salary by the Coronavirus Job Retention Scheme (CJRS) if they are operating PAYE schemes, the Treasury has confirmed.

Employment tax expert Penny Simmons of Pinsent Masons, the law firm behind Out-Law, said: "The chancellor should be applauded for the measures announced yesterday, which will give a welcome boost to millions of self-employed people across the UK who are already struggling as a result of the Covid-19 pandemic. However, it is very disappointing that the chancellor has decided to ignore the millions of self-employed individuals who operate through their own personal service companies (PSCs) and will be unable to work as a result of the current crisis."

"Although the chancellor's proposals are unprecedented and are being made in extreme circumstances, it is also concerning that by excluding PSC contractors from the proposals, the Treasury is effectively disregarding that under the current UK tax system, there are only two categories of employment for tax purposes and if an individual is not taxed as an employee they are considered self-employed. Therefore, up until yesterday evening, unless PSC contractors were caught by the IR35 rules, those individuals would have been regarded as self-employed for tax purposes." Simmons said

Pinsent Masons employment tax expert Chris Thomas said: "The objective may have been to prevent people double claiming, ensuring that if they are extracting salary from their company then they can’t claim the employment support scheme on that and also the self-employed scheme on their profits. However, it does appear to leave PSC contractors in a significantly worse position than those who are just sole traders."

"An alternative would have been to restrict PSC contractors from either claiming under the SEISS or the or CJRS; however, it's possible that that was simply too difficult to administer in the current circumstances," Thomas said.

PSCs have been included some of the government's efforts to support people affected by the current crisis. Changes to the IR35 rules affecting PSC contractors due to be introduced on 6 April have been delayed for 12 months to help individuals deal with the economic impact of the Covid-19 pandemic.

The IR35 rules require that employment taxes be paid by people who provide services to a business through an intermediary, usually a PSC, if that person would otherwise have been regarded as an employee of the engaging business for tax purposes. Currently, where a private sector business engages a contractor through a PSC, liability to decide whether IR35 applies and to pay any employment taxes rests with the PSC.