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What does the end of the furlough scheme mean for UK contractors?

The Coronavirus Job Retention Scheme, commonly known as the furlough scheme, was announced back in March and was part of…

Author Photo by Martin Baxter

The Coronavirus Job Retention Scheme, commonly known as the furlough scheme, was announced back in March and was part of a package of support measures from the government to help the economy as businesses were forced to close their doors as COVID-19 sent the UK hurtling towards lockdown.

It promised to pay either 80% of an employee’s wages or £2,500 per month, which ever was lower, plus employer’s NICs and pension contributions. It aimed to prevent businesses from making employees redundant by taking away the pressure of payroll during a time when they weren’t making money.

It also guaranteed employees an income so they wouldn’t be reliant on benefits. Since then, as much as £35.4 billion has been paid out to furloughed PAYE employees.

Over the last few months, the amount the scheme pays out has been gradually reduced, leading to the end of the scheme, scheduled for 31 October 2020, when employers will once again be completely responsible for their employees’ pay.

What will the end of the scheme mean for clients?

For clients, the end of the scheme is something of a crunch time. For those who have gradually been bringing employees back on board, it signals the start of business as usual – however that looks in the new normal.

As well as BAU work, this could also mean the resumption of projects that had been mothballed, or even the start of new projects that the pandemic and resulting lockdown have rendered essential to the growth of the business. This is, of course, potentially very good news for contractors.

For those, however, who have not been able to bring employees back as yet, now is the time they have to start having serious conversations about who they can bring back and who they can’t, and what projects they will be able to continue with. In these cases, there may be a move to more flexible working which could benefit contractors, although that will depend on individual client circumstances.

What will the end of the furlough scheme mean for contractors?

While the scheme was aimed at employees and not the self-employed, many limited company contractors were able to use it in order to cover 80% of their salaried income during lockdown. In many cases, this was the only support available to them as they were not eligible for the Self-Employment Income Support Scheme (SEISS).

However, in this sense, the furlough scheme wasn’t particularly fit for purpose as it didn’t take into account how PSC contractors pay themselves. Many take the majority of their income from dividends, and only pay themselves a relatively small salary. This meant that many saw a dramatic reduction in income and had to eat into savings in order to make ends meet.

The end of the furlough scheme means that PSC contractors who are still furloughed will have to return to work on or by Halloween and so now is the time to start rebuilding your business if you haven’t already.

It’s vital that you’re ready to start putting yourself in front of recruiters and end clients for consideration, and that means having everything up to date so that you’re an attractive prospect to them – especially in a scenario where lots of contractors are all getting back on the horse at the same time, and where IR35 reforms are being introduced in less than a year.

The other effect the end of the furlough scheme will have on contractors is that we expect to see the market opening up again as businesses begin operating and projects are resumed. We also expect to see a rise in the need for a flexible workforce as the UK economy works its way out of the pandemic-induced recession.

For many organisations, a flexible workforce of contractors and freelancers may be more viable than a raft of permanent employees waiting for enough work to occupy them all. It’s going to be a tricky time for businesses as they negotiate the new normal and find their way back to something resembling business as usual, so it’s worth getting in touch with past clients to see where they stand and to see how you can help.

One of the ways you can make sure you’re ready to go is by having your business insurances all set up. At the very least, this includes public liability, professional indemnity, and employer’s liability, but it’s also worth looking into IR35 Protect as this will cover you for taxes, interest, and penalties from HMRC while you still hold IR35 liability, but will flex to cover your fee payer come April 2021, making you a risk-free hiring prospect.

You can call our team on 01242 808740 or get a quote online using our simple form.

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