With the government now announcing a temporary UK-wide lockdown, the world remains gripped by the rapidly developing COVID-19 pandemic, so naturally many contractors will have legitimate concerns about how coronavirus will impact them. After all, unlike employees, many contractors are not entitled to statutory sick pay, will be facing the temporary closure of clients’ offices and may be experiencing concerns about income.

There are many questions contractors will have during this uncertain period. But, with 15% of the UK workforce being self-employed, it is vital that this group are informed and prepared for every eventuality.

In this article, Umbrella Broker explain everything contractors need to know about keeping their contracting careers afloat during the coronavirus outbreak – from how to claim temporary sick pay to how to defer tax payments. We’re here to help contractors stay calm and equip themselves with the knowledge needed to survive this uncertain period.

Temporary sick pay for the self-employed

Whereas employees benefit from the ability to claim statutory sick pay from their employers, many contractors do not share the same security.

Well, the good news for contractors is that government have announced temporary changes to help support self-employed workers impacted by COVID-19 – whether they fall ill or are required to self-isolate.

Those workers who aren’t eligible for statutory sick pay from their employer, such as the self-employed and contractors, will now be able to claim for Universal Credit or Contributory Employment and Support Allowance.

For the duration of the outbreak, the government will be relaxing its minimum income floor for Universal Credit for those impacted by COVID-19 or required to self-isolate according to government advice. For any contractors impacted by the virus, this means they will be compensated for any loss in income.

What’s more, contractors will be able to claim this from day 1 rather than day 8, without having to attend a jobcentre. To keep the virus contained, people advised to self-isolate will be able to get a doctor’s note by using an online NHS 111 service rather than going to their GP.

This offers much needed assurance to any contractor who’s income will be effected by the pandemic.

Self-employment Income Support Scheme

The recently announced Self-employed Income Support Scheme can be used by contractors who have lost income due to coronavirus.

Under the scheme, contractors can claim a taxable grant worth 80% of their trading profits, up to a maximum of £2,500 per month, for the next 3 months with a possible extension if necessary.

There are some exceptions to the scheme, meaning you are only eligible if you have:

  • Submitted an income tax self-assessment for the 2018-19 tax year
  • Traded in the 2019-20 tax year
  • Are trading when you apply for the scheme
  • Intend to continue trading in the 2020-21 tax year
  • Have lost profits due to coronavirus
  • Your profits are less than £50,000

Although the scheme has its limitations, it will come in very handy for thousands of contractors who have lost income due to COVID-19.

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Deferred tax payments for contractors

As we’ve already touched upon, many contractors’ incomes will be impacted by coronavirus – whether they find it hard to secure a new contract, fall ill or are required to self-isolate.

More good news for contractors is that HMRC have introduced a temporary ‘Time to Pay’ scheme – a limited time deferral on tax liabilities owed. Contractors can arrange an agreed time-period to pay tax owed, taking away financial stress for contractors with any outstanding tax.

HMRC have established a dedicated COVID-19 helpline contractors can call to set up their own Time to Pay arrangement based on their current circumstances. HMRC have also announced that they will waive late payment penalties and interest if a contractor is experiencing administrative difficulties in contacting HMRC or paying their taxes due to the coronavirus.

Check your contractor insurance

There are many types of contractor insurance, from income protection insurance, life insurance to critical illness insurance. Whatever the circumstance, it’s always a sensible idea to ensure you are covered for all eventualities with contractor insurance.

During this unprecedented time, every contractor should check their policies to see if they offer any form of relief should they fall ill or experience loss of income.

As contractors are vulnerable to financial hardships in case of illnesses or accidents, it worth looking through your policy to see what you can claim, and to check out whether you are covered in case of loss of income due to COVID-19.

Delays to IR35 legislation until 2021

The widely criticised and anticipated reforms to IR35 legislation were set to come into motion from 6th April, the start of the 2020/21 tax year.

Reforms to IR35 are predicted to negatively impact thousands of contractors operating through a limited company – with an estimated 170,000 individuals predicted to be effected.

Under the reforms, it will be the responsibility of the end-client to assess a contractor’s IR35 status, with the view to removing tax advantages to ‘disguised employees’, those who work more like employees rather than contractors.

For thousands of contractors, the new rules will bring big changes. Fee-payers, usually a recruitment agency or client, will now be responsible for deducting income tax and National Insurance contributions from the contractor. As a result, it is predicted that many larger clients will simply opt out of using the services of contractors, as many have already done.

However, with no mention of IR35 in the 2020 Budget, the good news for contractors is that the implementation of IR35 reforms have now been delayed by a year due to the coronavirus pandemic. Speaking in Parliament, the Chief Secretary to the Treasury announced that ‘the government is postponing the reforms to the off-payroll working rules, IR35, from 6th April 2020 to 6th April 2021, in ‘response to the ongoing spread of COVID-19 to help businesses and individuals.’

This is great news for the thousands of limited company contractors who would otherwise by impacted by the changes to IR35, giving them more stability during uncertain times and another year to prepare for off-payroll changes.

Next Steps – be prepared for any eventuality during the coronavirus pandemic

During a time of uncertainty surrounding the global outbreak of the coronavirus pandemic and a current UK lockdown, many contractors may wish to gain more stability by utilising the services of an umbrella company. An Umbrella Company employs a contractor, helping them fulfil invoices, take care of paperwork, calculate tax and offering that all-important statutory sick pay. If this is the level of certainty you need during the COVID-19 outbreak, use our handy umbrella company comparison tool to find the perfect umbrella company for your contracting requirements.

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