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.
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
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.
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.
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.
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Rebecca is a leading expert in ‘employment status’ and IR35 and the law involving independent contractors and the self-employed for the purposes of tax and employment law. Rebecca has run her own consultancy for the past 20 years covering all employment status issues such as off-payroll in the private and public sector, otherwise known as IR35...