COVID-19: Update for limited company contractors
Support for limited company contractors
COVID-19 has been a time of uncertainty for many limited company contractors (PSCs) but there are a number of Government schemes in place to help ease the financial stress. Here is an update on the latest Government guidance.
The Government has released further information regarding measures that can help to ease your cashflow concerns. See below for more information on the schemes that are most relevant to Limited Company or PSC contractors:
If you’re VAT registered:
Under the new provisions, while the option remains for you to pay as normal, some VAT payments can be deferred until a later date if necessary. Deferred VAT payments must be paid on or before 31 March 2021, though until that date you will be charged no interest or penalties from HMRC on VAT payments if they fall within the specified criteria:
- VAT return payments for the periods ending in February, March and April
- Payments on account due between 20 March 2020 and 30 June 2020
- Annual accounting advance payments due between 20 March 2020 and 30 June 2020.
If you wish to defer payment, you do not need to do anything apart from cancel your VAT direct debit (if you have one set up), or cancel online if you’re registered for online banking.
HMRC will continue to process VAT reclaims and refunds as normal. There is also the ability for you to apply online to move to monthly returns to improve your cashflow. If you wish to look at this, please speak to your JSA accountant in the first instance.
If you need to defer your self-assessment tax on account payment:
As a result of COVID-19, you can now delay making your second personal tax payment on account (due by 31st July 2020). You will not be charged interest or penalties as long as you pay before 31 January 2021. If you would prefer to pay regularly throughout the year, you can use a budget payment plan to set this up – let us know and we will help you to arrange this to suit your needs.
If you can’t pay your tax bill:
If you are worried about meeting any of your upcoming tax payments, you can access the Time to Pay Arrangement which allows you to defer your outstanding payments or arrange with HMRC to pay in instalments. Arrangements are agreed on a case-by-case basis and are tailored to your individual circumstances. Please get in touch with us if you feel that you may need to access the Time to Pay scheme and we can help you calculate what you owe.
If you’re worried about business rates:
Small businesses in England that pay lower levels of business rates are entitled to a cash grant of up to £10,000 from the local council to help meet ongoing business costs. You may be eligible for this grant if your business occupies property and was eligible for small business rate relief or rural rate relief as of 11 March 2020.
If you’re searching for a business loan:
To help you cover the costs associated with your business, the Government has established the Coronavirus Business Interruption Loan Scheme (CBILS) (https://www.gov.uk/guidance/apply-for-the-coronavirus-business-interruption-loan-scheme) which provides financial support for smaller business who have been affected by COVID-19. Loans and other types of finance of up to £5 million are accessible under the CBILS scheme. Under this scheme, the Government guarantees 80% of the finance to the lender and pays interest and fees for the first 12 months, meaning no upfront costs for small businesses and lower initial repayments.
Alternatively, you could apply for a loan under the Bounce Back Loan Scheme (BBLS) (https://www.gov.uk/guidance/apply-for-a-coronavirus-bounce-back-loan), which enables smaller businesses to access finance quickly. This scheme helps small businesses to borrow between £2,000 and up to 25% of your turnover (capped at £50,000). The Government guarantees 100% of the loan with no fees or interest to pay for the first 12 months – allowing you to get back on your feet with no upfront costs.
Get in touch with us and we can help you to assess your eligibility and need for a loan, as well as help you gather together all the details you will need to provide to a lender.
Coronavirus Job Retention Scheme (CJRS)
The CJRS allows you to claim 80% of your wage from the Government (up to a cap of £2,500 per month). Whilst this has been of limited use to PSC contractors due to their mix of low salary/dividend payments, it is still helpful to those who would otherwise be left with a gap in income. Under the CJRS, the government will also pay the employer National Insurance (ER NICs) and pension contributions for the hours that the employee does not work.
Information regarding the extension of the CJRS has been released, helping you to manage your return to work, as an employee of your own limited company.
Until the end of August, the Government will continue to pay 80% of wages, up to a maximum of £2,500 per month, but now you will have the flexibility to begin working part-time. You will have the freedom to determine your hours and shift patterns to fit your needs – with no minimum time that you can furlough yourself for. You will receive full pay for the hours that you work, but as before, if you’re on a low salary / dividend mix, that still won’t match your usual overall income level. For many contractors, there will be a point where work recommences permanently, and at that point, it will be sensible to end your furlough period.
You will need to submit information on the expected working hours during the claim period and the actual hours worked.
The Coronavirus Job Retention Scheme will be slowly tapered from August. If you are a smaller employer, some or all of your employer NIC bills will be covered by your Employment Allowance, so you should not be significantly impacted by the tapering of the government contribution. However, many PSC contractors are barred from using the Employment Allowance scheme. In reality though, the levels of salary claimed by most PSCs are unlikely to trigger a significant cost, if anything, in the employer’s NIC.
Please note that the scheme will close to new entrants from 30 June, meaning that if your furlough period hasn’t started by 10 June, you won’t qualify (furlough periods have to be at least three weeks in length).
For more detailed information of the tapering of the Coronavirus Job Retention Scheme, and how it relates to you personally, please get in touch.
Here to help
No matter your situation, we are here to help you manage your way through the Coronavirus pandemic. If you have any queries relating to your limited company/PSC finances or would like some more information about any of the above cashflow schemes, please get in touch and we will be happy to assist you.