Boris Johnson rejects extending CJRS to cover contractor dividends

Boris Johnson has turned down an opportunity to make the Coronavirus Job Retention Scheme cover 80% of a limited company contractor’s dividends, not just 80% of salary.

Asked yesterday in the House of Commons if he had “some good news” for the “hundreds of thousands” of affected taxpayers, the prime minister simply referred to guidance by HMRC.

Although Mr Johnson said the issue was “very, very important”, he did not read the guidance which he gestured was in his pocket, due to it being “of fantastic complexity”, he mused.

“The gist of it is that, at present, HMRC would be forced to rely on all sorts of information that they would not be able themselves to verify very easily”, the PM said.

'Discuss it more fully'

Mr Johnson added he would be “happy” to “discuss it more fully” with Mel Stride MP, who raised the issue of whether furlough pay could cover dividends at yesterday’s PMQs.

As to the HMRC guidance which the PM referred to, and joked about, but didn’t read aloud, ContractorUK asked the Revenue for a copy. However, a HMRC spokesman would only say:  

“Our position on that hasn’t really changed. Ultimately, it is the Treasury’s or the chancellor’s decision on the rules for each scheme.

“But [with the CJRS], we have said that there isn’t a way to identify which dividends are in lieu of wages, or as a passive return on a capital investment.”

'I'm struggling with HMRC's rationale'

The HMRC spokesman referred to the stance being set out by the Revenue’s CEO Jim Harra in April, when he gave evidence to the Treasury Select Committee, which Mr Stride chairs.

“I’m struggling a little bit to understand why dividends that are generated through self-employment and taken through a business…should be excluded,” the MP began, referring to the CJRS.

Addressing Mr Harra by videophone, the committee chair added: “Can you just explain the rationale for that because I’ve had quite a lot in my post bag on that particular issue.”

'Difficult issue'

The Revenue CEO began by pointing that people running their own business via a limited company are not self-employed, and said that 80% of their salary is covered by the CJRS.  

As to the specific question of dividends under the CJRS, Mr Harra said: “From our perspective, we have no way of identifying which dividends people receive…in lieu of wages

“And which dividends are a return on capital either in their own company or as a general investment.”

He added: “That’s been a difficult issue to work through and we’ve not been able in the timescale to come up with any design that will enable us to top-up the furlough payments of those people beyond 80% of their wages.”

Due to IR35 complications, not all contractors or advisers support the idea of the CJRS covering dividends in the same way as it covers the salaries of employees.

But more than 340,000 people do, according to a petition calling for the employed via limited companies to be put on a par with both their employed and self-employed counterparts.

'Not adequate'

Many of the signatories, plus people who did not sign, are now being urged to back a similar petition on parliament’s site, as the government is duty-bound to reply at 100,000 signatures.

But petitioner Amanda Evans says the government has been asked to revise its response (to the 340k petition), as its initial response “was not adequate.” She expects the reply this week.

So far the Treasury sounds disinterested, however, seemingly due to the logistical and operational constraints that paying out 80% of average dividends would foist on HMRC.  

“Expanding the scope [of the CJRS] would require HMRC to collect and verify new information which would take longer to deliver.

“And [it would] put at risk the other schemes which the government is committed to delivering as quickly as possible,” HMT said.

'Decided, and sticking'

Meanwhile, when he quizzed the Revenue’s boss, Mr Stride asked if discussions were underway between the Treasury and HMRC about extending the CJRS to cover dividends.

Or whether, in the MP’s words, the government has “decided” the CJRS will exclude dividends and that ministers are “sticking” to that decision no matter what.

“It has been decided that is the policy,” Mr Harra replied to the committee, which has extended the deadline to send evidence on covid-19’s economic impact until June 26th.

The Revenue CEO added: “The government continues to listen to people and knows what that issue is. But at this stage, there are no plans do anything further about that.”