End of Furlough Looms for Contractors

End of Furlough Looms for Contractors

22 June 2020

Many industries have been rocked by the ongoing coronavirus pandemic. As the smallest entity in supply chains, contractors will be among the hardest hit by the virus lockdown.

For many contractors, the Coronavirus Job Retention Scheme (CJRS) has been a valuable source of support when other work has dried up.

Because umbrella companies employ umbrella contractors on a PAYE system, contractors have had the opportunity to receive furlough payments since the scheme was announced.

Personal service company contractors can also use the furlough scheme because they are effectively employees of their own limited company. However, contractors that have minimised their income and maximised dividend payment for tax purposes will only receive limited CJRS support.

Announced in March, the CJRS currently covers 80% of a furloughed employee’s income, up to a maximum of £2,500. Affected employees must not complete any work for the company while they are furloughed, although limited company directors may perform some essential tasks such as keeping records and filing taxes.

At the end of May, Rishi Sunak announced that the CJRS would be extended beyond the original June finishing date, albeit with some important caveats. The Chancellor announced that the scheme would be extended in its current form until the end of July, but employers will be expected to pay for a portion of furlough costs from August.

In the rest of this blog post, we will explain the most important changes as they apply to affected contractors.

Employer NICs and Pension Contributions

The initial version of this scheme covered all employment costs, including employer National Insurance Contributions (NICs) and pension contributions. However, from August 1st, the scheme will no longer cover these costs with the employer (either the umbrella company or the limited company) expected to pick up the bill.

Extra contributions

In the latter stages of the scheme, the government will seek to pass more of the cost onto employers. This means that, from September 1st, the government contribution will be cut to 70% of wages, up to a cap of £2,187.50 per month, with employers expected to make up the 10% difference to 80% for any unworked hours.

From October 1st, the government contribution will fall to 60%, with employers expected to make up the 20% difference to 80%.

For more information about financial support for contractors during the coronavirus pandemic, speak to a member of the team today. Call: 0800 121 6513.