Employment Status & IR35 expert Re Legal Consulting Ltd
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Coronavirus: What help can freelance workers get?

Whether you work through a PSC, other limited company, umbrella company or are self-employed, will affect what sick pay support you are entitled to during the Covid-19 pandemic.

24th Mar 2020
Employment Status & IR35 expert Re Legal Consulting Ltd
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Sick pay
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There is a lot of confusion around the terminology in the freelance sector and as a result, who is entitled to what or not entitled at all. The problem lies with not only the entitlement to sick pay, statutory or otherwise but, also, the loss of income.

Categories of self-employment

The main-stream media refer to the self-employed as one population, of which there are 5.4 million in the UK, but each category has its own tax treatment. It is really important to differentiate between the different categories:

  • Self-employed sole traders or partners in partnerships (SEMP)
  • Personal service companies and their workers (PSC)
  • Limited company contractors (LCC)
  • Umbrella workers
  • Officeholders

There is mounting pressure on the Chancellor to provide support for the self-employed under these extraordinary circumstances and the Chancellor has just announced that they are working on a solution but, that it is not as easy logistically as the PAYE system.  It is not clear, however, whether that would include PSCs or LCCs.

Self-employed sole traders

The SEMP category applies to those who are providing their services individually and not through a limited liability company. They will pay income tax and Class 2 & 4 national insurance contributions (NICs). They are not entitled to Statutory Sick Pay (SSP) or the Coronavirus Job Retention Scheme (CJRS), although if they employ someone and fit the criteria they are entitled to use the scheme.

These individuals are entitled to claim for Universal Credit or Contributory Employment and Support Allowance. The government has moved the entitlement to day one instead of day eight and is trying to speed up the process.

Personal Service Company (PSC)

A PSC has no definition in law but, HMRC have used the term to apply to those working inside IR35, and that is how I am using the term in this article.

If the individual who provides their services through a limited company has declared themselves as inside IR35 under Chapter 8, Part 2 of ITEPA 2003 and paid the relevant NICs, then they are entitled to SSP as they are specifically accounted for in the Social Security Contributions and Benefits Act 2003 as an employed earner.

They will be entitled to claim the SSP from day one and to get a refund from the government for two weeks SSP per eligible employee who has been off work because of Covid-19.

If the PSC worker has been assessed as inside IR35 by a public sector body, they will not be entitled to SSP. Nor will a PSC worker who provides their services to the private sector when the new reforms come in on the now delayed date of 6 April 2021.

These provisions are under Chapter 10, Part 2 ITEPA 2003. It is unlikely that these workers will be entitled to the CJRS because they do not have a contract of employment, even though they pay tax as a deemed employee.

Limited Company Contractors (LCC)

This individual works through a company where they will ordinarily have one working director and that person will generally also be the majority shareholder of the company. This individual works outside of IR35 and does not (for the purpose of this article), work through a personal service company (PSC).

The LCC is not entitled to SSP unless they are an employee of their own limited company, and that also applies to other statutory payments such as redundancy. Some people might think that it is an automatic assumption that you are an employee of your own limited company but, it is not.

There have been various cases on this subject and the general guidance is that if you have a controlling interest in the company or are the sole shareholder or sole director and cannot be dismissed, then it is unlikely that you are an employee of your own limited company.

If the individual wants to prove that they were an employee they would need a genuine contract of employment, ie not one made at a time of crisis. Although a contract of employment is not a legal obligation per se, a written statement of particulars is. Was a written statement of particulars issued within two months of the employee starting the position of employment with their own limited company?

This will also apply to the CJRS unless there is a contract of employment and/or other evidence of employment, the CJRS is unlikely to apply to a director of a limited company.

They will have the position of officeholder as a director of their own limited company and as an officeholder, they should be paid for their duties on payroll in any case. The payment of dividends is as the result of being a shareholder, not as a result of being an employee.

Umbrella worker

An umbrella worker is an individual who provides its services through an umbrella company and is an employee of an umbrella. They are, therefore, entitled to full rights as an employee for all statutory payments.

It may be that they are entitled under the CJRS but, this is will be down to their contract of employment and the actions taken by their employers.

Insurance

Most self-employed in any of the above categories get paid by invoice, and they will have invoices outstanding and probably work that has yet to be invoiced. So, it is not simply the sudden loss of income if they cannot work but are being paid for work that they have already done and invoiced for, or that is waiting to be invoiced.

This can amount to a substantial amount of their income at any one time, ironically this is the financial risk of being self-employed. Late payment of debts is well known when you work as self-employed but, it could be a particular problem now especially as the government has not so far offered any help to this sector on income protection.

Some of these individuals will have taken out income protection insurance or business interruption insurance but, unless the insurance covers a pandemic it is unlikely to pay out.

Replies (28)

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By martinf81
25th Mar 2020 08:38

The Coronavirus Bill already seems to include amendments for statutory self-employment pay at 80% of a monthly average based on the last 3 years with a cap at £2,917, help should hopefully be on the way for the self-employed:

https://publications.parliament.uk/pa/bills/cbill/58-01/0122/amend/coron...

Page 14.

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Replying to martinf81:
Rebecca Seeley Harris
By Rebecca Seeley Harris
25th Mar 2020 09:38

See comment below: in it's current form this Bill is unlikely to make it through parliament.

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Replying to martinf81:
By ireallyshouldknowthisbut
25th Mar 2020 09:39

@martin, that is disinformation.

Its a lib-dem amendment which has been rejected by Rishi.

https://www.bbc.co.uk/news/business-52021299

Edited to add - I get a *snap* with Rebecca.

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Replying to ireallyshouldknowthisbut:
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By martinf81
25th Mar 2020 09:57

Thanks for clarifying I am sharing what a lawyer emailed to me - I did say "hopefully!"

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Replying to ireallyshouldknowthisbut:
By Brian Ogilvie
25th Mar 2020 10:51

What on earth did the Libdems think they were going to achieve with a poorly drafted amendment which they were well aware would fail ? Three clients picked up on this spoof story and had already spread the word to others too

Pathetic and time wasting beviour from so called politicians

"Falsehood flies, and truth comes limping after it" (Mark Twain)

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Replying to Brian Ogilvie:
Rebecca Seeley Harris
By Rebecca Seeley Harris
25th Mar 2020 11:44

It's really badly drafted and has given false hope to a lot of people. Unfortunately alot of self-employed now think they are going to get paid! Let's hope Rishi comes up with something later today.

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Paul Layte
By Paul Layte FCA
25th Mar 2020 08:43

Most won't value much of the above support they will want to know about this:

https://publications.parliament.uk/pa/bills/cbill/58-01/0122/amend/coron...

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Replying to Paul Layte FCA:
Rebecca Seeley Harris
By Rebecca Seeley Harris
25th Mar 2020 09:36

Unfortunately, that is only a bill and in its current form is unlikely to pass through parliament. Hopefully, the Chancellor will make an announcement later today.

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Replying to seeleyharris:
Paul Layte
By Paul Layte FCA
25th Mar 2020 11:13

Yes exactly, bigger support for this group is being worked on which is what people will be interested in. Fingers crossed they don't make it too much of a hash of the implementation.

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By bobsto12
25th Mar 2020 08:45

Even if you are entitled to ssp via an umbrella company anyone who took a year off for any reason or didn't work for 26 weeks in either of the last 2 years(semi retired?) wont get it.

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By North East Accountant
25th Mar 2020 08:53

HMRC think that all self employed fiddle (which of course they do not). As such no doubt HMRC are struggling to justify supporting people who do.

Of course, it's totally hypocritical for any self employed person who has fiddled expenses, done cash jobs, suppressed takings etc and denied the Government tax monies to then want the Government to bail them out. And then no doubt go back to their dodgy ways.

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By practice for sale
25th Mar 2020 09:48

Good analysis & explanation, Rebecca, thank you.

With the closure of parliament after today, I wonder how they are going to enact any support for the self employed?!

And I agree with another poster, if you dont pay your club membership fees (tax!) dont expect the club benefits.

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By practice for sale
25th Mar 2020 09:48

Good analysis & explanation, Rebecca, thank you.

With the closure of parliament after today, I wonder how they are going to enact any support for the self employed?!

And I agree with another poster, if you dont pay your club membership fees (tax!) dont expect the club benefits.

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By pauljohnston
25th Mar 2020 11:41

THe last point I saw on this suggested that the UK was looking at the scheme suggested I think in DEnmark.

That is the amount paid to the self employed person would be based on the net proft (I assume before capital allowances) averaged over the last 2 or 3 years. 80% of result probally with an upper limit. All those who have cash jobs wont get a penny more and all those who have not registered will get 0 .

One of my contacts thinks there will be a big shake up in the area once we exist the crisis.

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Mark Lee 2017
By Mark Lee
25th Mar 2020 12:00

I really hope they find a solution to this but that poorly drafted bill wouldn’t have been of much help - even if it had passed (which it was never going to do) as it would take time to prove what our self employed income was over a 3 year period.

I suspect the reason they didn’t announce anything for the self employed and freelancers at the outset is because of the practical difficulties to decide how much each person should get and how to get it to them.

With employees there is third-party (employer) evidence of salaries paid through PAYE and, in the main these are constant.

That’s the theory anyway.

The problem with the self employed is that our income can fluctuate from week to week, month to month and year by year. There is no easy to access independent evidence of what would be a fair starting point.

Even if you say HMRC has the records of the last 3 years, their systems aren’t set up to extract this data automatically. And a rule would be required for those who have been self employed for less than 3 years. And so on.

Having said that, I did see a FinTech entrepreneur saying in the Sunday Times that he’d created a solution using open banking that would pick up on banked income over the last 3m. He was hopeful the Govt would look at this as a way of evidencing self employed income.

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Replying to bookmarklee:
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By Ruth75
26th Mar 2020 13:37

Some clients of mine such as those that provide gardening services or others that work outside, have incomes that are seasonal. [***] we are just coming out of winter they would be disadvantaged. However saying that it is impossible to find a solution that is completely fair for everyone, and some income is better than none.

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By gimme5
25th Mar 2020 12:21

Is there a distinction between the Limited Company Contractor (LCC) issues described here where those in this classification work on a contract basis and your standard single company director who have a wide ranging client base with no contract to contract situation.

I am trying to establish the entitlement under the Coronavirus provisions for many directors of this type of company who are mainly micro businesses?

Grateful for any help on this as it does not seem to be covered anywhere.

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Replying to gimme5:
Rebecca Seeley Harris
By Rebecca Seeley Harris
25th Mar 2020 15:44

No, there is no distinction betrween an LCC or a PSC or an ordinary company with a director and multiple clients. The case law applies to any sole director / majority shareholder and it is to do with the controlling mind of the company. If the person controlling the company i.e. the director is the same as the purported employee, it is difficult to see how one and the same person could take any actions on the others behalf.

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Replying to seeleyharris:
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By gimme5
26th Mar 2020 10:05

Many thanks Rebecca. If these company directors don't have employed status then it seems to follow that they are classed as self-employed? Would that assumption be correct?

If so they will be affected by the Govt. scheme to be announced today. I suspect HMRC may still class them as employed though.

Any thoughts?

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By NewACA
25th Mar 2020 16:35

The self-employed are allowed to defer the July PoA income tax/NI class II/IV to Jan 2021, presumably this doesn't include those who are contractors via a LTD Co? They consider themselves to be self-employed, are they allowed to defer the July PoA?

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Replying to NewACA:
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By gimme5
26th Mar 2020 10:08

The official HMRC announcement on tax deferral only mentions self assessment payments on account. It does not refer specifically to self-employed.

https://www.gov.uk/government/publications/guidance-to-employers-and-bus...

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By indomitable
26th Mar 2020 18:00

Very useful article, thanks for the clarification

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By whiteways
26th Mar 2020 18:47

So after Sunak's announcement, LCC's get no Job Retention scheme payments, no self employment help, nothing?

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Replying to whiteways:
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By martinf81
26th Mar 2020 19:00

How long will it be before sole-traders realise that the future increase in National Insurance will effectively make them pay the money back......Haven't the Government just got what they always wanted but too afraid to do!

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By martinf81
26th Mar 2020 19:53

Looking at the latest HMRC guidance about the Self-employed, at the end it says:

"If you’re a director of your own company and paid through PAYE you may be able to get support using the Job Retention Scheme."

Here is a link:

https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-...

Surely HMRC are giving the green light for directors of limited companies?

Thoughts anyone?

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Replying to martinf81:
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By martinf81
26th Mar 2020 20:02

Is this a mistake I wonder as the link takes you to Support for businesses through the Coronavirus Business Interruption Loan Scheme?

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By [email protected]
27th Mar 2020 10:22

Hi Rebecca
I am very confused by the government bail out? I am not sure I qualify for anything? The 5% highlighted by the Chancellor.

I was a limited company up to 2018 Paul Holmes 8115 LTD. 2018/19 I worked through an Umbrella company My Key Pay. I did not make my tax threshold , so HMRC advised me to not submit a tax return on my online account. This year 19/20 I again have not met my threshold and am still with the Umbrella company. Work has been slow and week to week really. I have registered in the last week and have again become a Ltd and take on Paul Holmes 8115 LTD and the idea is to work for myself again and revamp my company before returning to work, once allowed

Will I qualify for any of the bail outs by the government?

Thank You

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By ColMax
01st Apr 2020 13:55

Rebecca, can you help? I have worked as a Contractor for the last year and half through an umbrella company and have paid over £40K of my income (through PAYE) in Employer's NIC, Employee's NIC and Tax. My last contract ended on 28 February (not Coronavirus related, just the planned end of the contract). I cannot work out if I am entitled to any help from the government.

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