Ltd Company Freelancers: pathways to support
If you’re worried about your finances and wondering what support may be available to you, this page suggests a number of steps to take.
1 – How do you take your income?
Directors of small limited companies typically take income from their company in two ways:
- monthly salary
The government has not worked out a way of calculating the level of dividends that come from a specific source, and therefore ignores dividend income altogether in the coronavirus support schemes.
If you take all your income using this route, there’s not much I can say, except skip to section 2 below.
There is intense lobbying to get the Treasury and HMRC to look at this anomaly, given that many limited company freelancers cannot get work except by using this business type.
Money from salary
If you take income in the form of a salary from your company, you can use the Job Retention Scheme, presuming you were on your company’s payroll on 28 February 2020.
One further obstacle is that it doesn’t work if you run your payroll reporting annually and have a reporting date after 19 March for 2019-20. This is how some accountants operate things on behalf of freelancers. It’s a horribly cruel twist for people who thought they were eligible for furloughing, but didn’t realise the annual reporting cut-off date applied to them.
The scheme opened for applications on 20 April 2020, and grants are paid within about ten days.
Please note that the Job Retention Scheme has now closed to new applications. If you were not furloughed by 10 June, you can’t be part of the furloughing scheme.
HMRC will use your monthly PAYE information to check your claim against records.
When you use the Job Retention Scheme you have to furlough yourself from your own company.
This means you can’t do a thing to generate business, or contact clients on behalf of your own company. You have to stop working for the duration of the furlough.
Also, if you only took a low salary from your company, the government will only reimburse your company with 80% of the salary, based on the recent monthly wage.
So you might not get much.
UPDATE 2 November 2020: Flexible furloughing was introduced from August 2020, was due to end on 31 October, but has been extended until the end of November 2020 because of lockdown 2 .
Job Retention Bonus
If you furloughed yourself from your own Ltd Company, you should be eligible for the job retention bonus.
This scheme is an extension to the Job Retention Scheme, and allows an employer to receive a single £1000 bonus for every employee retained on the payroll between November 2020 and the end of January 2021.
The eligibility criteria include:
- the employee must have been furloughed before the end of June
- the employee must be on the payroll continuously from the end of October 2020 to 31 January 2021
- the employee must be paid at least £520 per month on average between November 2020 and January 2021
It sounds like the bonus should be available to sole directors of limited companies, providing they already furloughed themselves at some point before the end of June.
Being furloughed by one business doesn’t stop you working for another.
Technically you could even set yourself up as a sole trader (self-employed) and get income that way.
But you’d have to register as such by the end of this tax year and meanwhile keep all the usual records of income and expenses for your sole trader business, as well as everything for your limited company.
This is probably not going to be attractive to many people, especially those that hate paperwork.
2 – Keep now, pay later
Limited companies have available to them other business support measures.
These might be loans or deferment of some taxes. Unfortunately everything has to be paid back, so even if you use these you might be storing up problems for later.
3 – Check your eligibility for benefits
Benefits may be available to you even if you’re getting some limited support from other schemes.
It’s worth using a benefits checking site to see what you might be eligible for. It’s like a dry run for applying to the DWP. You can also get advice from Citizens Advice.
Universal Credit may work for you if you do not have support from elsewhere.
To be eligible your household needs to have less than £16K in accessible cash (savings, etc).
- If you live on your own you are the household.
- If you live as a couple, sharing bills, you are both the household.
- If you live in a flat share, but not as a couple, you’re treated as if you live on your own.
How much will you get?
This is very hard to generalise about. If you are 25 or over, a basic amount may be £450-ish per month. For a couple it would be £550-ish per month. But UC can be substantially higher if you have children, and are paying rent or mortgage interest.
It’s paid monthly in arrears (fortnightly in Scotland), but you can get an advance within days if eligible for UC and in difficult financial circumstances.
4 – Check support from industry bodies
If you don’t get enough from the schemes listed above, or from benefits, there are a number of charities who might be able to help you.
If you work in film or TV, the Film and TV Charity has set up some emergency funds. Many creative freelancers are falling between the gaps in the support schemes.
5 – Borrow money (handle with care)
Small businesses can access a bounce back loan. This a special government loan scheme with no interest for a year – then low interest rates for a further five years.
It’s the business that would get the loan, so if a limited company freelancer accessed the scheme, the money would go to the limited company as working capital. You’d probably need advice from your accountant to work out how to use the money within the rules of the scheme.
[If you’re a sole trader, the money goes to you as the business. You personally would be liable to pay back the loan.]
Martin Lewis of Money Saving Expert has a very good explanation of how the scheme might work for sole traders and limited company directors.
Image credit: Peggy_Marco pixabay.com
Posted on 14 April 2020