Read. Review. Recruit. Recruitment Newsletter | Winter 2016/17
The Modern Slavery Act: What you Need to Know
Beware of Fraudulent Emails “From HMRC”
Recruitment Sector Shake Up: IR35 Changes a Reality
Businesses that supply goods or services and have a turnover of £36million or more are affected by the Modern Slavery Act.
In the last few months many of our clients have been the subject of scam emails, supposedly from HMRC.
From April 2017, off-payroll working rules in the public sector will be reformed.
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Contents
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Welcome and Partners
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Special Feature Autumn Statement 2016: Highlights for the Recruitment Sector
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All Change for the VAT Flat Rate Scheme
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The Modern Slavery Act: What you Need to Know
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Recruitment Agencies: Four Issues Hindering Growth
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Raffingers Upcoming Events
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Beware of Fraudulent Emails “From HMRC”
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Raffingers Foundation
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Employee Spotlight
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How to Reduce Your Business Rates
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Making Tax Digital: opportunity or Threat?
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Looking to Raise Capital
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Recruitment Sector Shake Up: IR35 Changes a Reality
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IR35 Changes: Minor Breakthrough
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Welcome to our WINTER Newsletter Welcome to our Winter Newsletter. Despite the recruitment sector experiencing another great year, many are concerned that the market has now flatlined. The latest ONS statistics, which look at the market from September to November 2016 depict that:
• Employment rate is 74.5%, virtually unchanged
compared with earlier in the year, but at least higher than a year earlier • Salaries on the rise - average weekly earnings have increased by 2.8% compared with a year earlier • 294,000 more people in work than a year earlier In our eyes, the recruitment sector is performing well when considering the number of changes that are to impact the sector - Brexit, IR35 and Making Tax Digital. The sector is resilient, but it is important that you are aware of the impact these changes may have on your agency in order to limit them as much as possible. To help those in the recruitment sector to have a successful 2017, we bring you all of the key points from the Autumn Statement 2016, which you need to be aware of. Our Managing Partner also delves further into the IR35 changes, which will come into force as of April 2017 and will affect agencies in the public sector, see page 14. Finally, in this edition Lee Manning takes a look at Making Tax Digital, which it has been confirmed will be going ahead in April 2018 for sole traders and buy-to-let landlords. See his article on page 12 for further information. If there are any topics you would like to see discussed in the next edition, or would like to submit an article of your own to feature in our spring newsletter, then please get in touch.
Raffingers Partners
Gary Inglis Managing Partner gary@raffingers.co.uk
Andrew Coney Partner andrew@raffingers.co.uk
Lee Manning Partner lee@raffingers.co.uk
Adam Moody Partner adam@raffingers.co.uk
Suda Ratnam Partner suda@raffingers.co.uk
Barry Soraff Partner barry@raffingers.co.uk
Paul Dell Partner paul@raffingers.co.uk
The Partners at Raffingers
Raffingers Foundation - Page 9
Autumn Statement 2016: Highlights for the Recruitment Sector SPECIAL FEATURE
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Employment
1.5 ‘Off-payroll working rules’
1.1 National Living Wage and National Minimum Wage Rates
Those caught within the ‘IR35 legislation’ and working within the public sector will no longer be entitled to the 5% tax free allowance. This was given to take into account the administration burden.
From April 2017, the National Living Wage (NLW) will increase by 4.2%, from £7.20 to £7.50 and the following rates will apply:
The responsibility to ensure that a worker is paying the correct amount of tax and NICs will now fall on the body paying the worker’s company.
• £7.05 - the main rate for workers aged 21 to 24 years old (old rate: £6.95) • £5.60 - the rate for workers aged 18 to 20 years old (old rate: £5.55) • £4.05 - the rate for workers aged 16 to 17 years old (old rate: £4.00) • £3.50 - the rate for apprentices (old rate £3.40)
This is an area that the government is still reviewing. For more information on these changes see Raffingers’ Managing Partner’s blog on page 14. 1.6 Employee Shareholders Shares Any arrangements entered into from December 2016 will no longer benefit from the first £2,000 worth of shares being exempt from income tax and the first £50,000 worth of shares being exempt from capital gains tax on disposal. Arrangements entered into before December 2016 will continue to benefit from the exemptions (within the set limits).
1.2 Class 1 With affect from April 2017 both employer and employee Class 1 National Insurance Contributions (NICs) will become chargeable on earnings above £157 per week. 1.3 Salary Sacrifice This was a great way to incentivise and reward employees because of the tax and class 1 NICs savings. However, following consultation, with effect from April 2017, the salary sacrifice scheme will only be available on pensions, childcare, cycle to work and ultra-low emission cars. Any schemes in place before April 2017 can continue to run until April 2018. 1.4 Termination Payments With effect from April 2018, any payment over £30,000 will be subject to income tax and employer class 1 NICs. The tax will only be applied at basic rate and only where the employee does not work their notice. These changes are being monitored by the government.
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Individuals 2.1 Personal Allowance The personal allowance currently is £11,000, rising to £11,500 from April 2017. This will increase to £12,500 by the end of parliament. Thereafter the personal allowances will increase in line with consumer price index. 2.2 Pensions and Savings The government is continuing to support savers by increasing the ISA limit to £20,000 (from £15,240) in April 2017. In addition, the starting rate for savings will remain at its current level of £5,000 for 2017-18.
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Investment to Raise Productivity A new National Productivity Investment Fund has been announced, which will add £23billion in high value investment from 2017/18 to 2021/22. This investment will be targeted at areas that are critical for productivity: housing; research and development (R&D); and economic infrastructure. R&D got an additional mention with the government declaring that they will look at ways to build on the ‘above the line’ R&D tax credit to make the UK an even more competitive place to do R&D.
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Non-Domiciled Individuals Currently, non-domiciled individuals have a yearly choice on the tax treatment for income tax. A non-domiciled person can either pay tax on an arising basis (worldwide income and gains) or a remittance basis. If the remittance basis election is made, a charge may be levied where they have been resident in the UK for over seven years. With effect from April 2017, a person will be deemed UK domiciled if they have been resident in the UK for 15 of the past 20 years. These individuals will be taxed on an arising basis and not have the choice of the remittance basis. These changes will apply to income tax, capital gains tax and inheritance tax.
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Non-Resident Companies
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Insurance Premium Tax
Consultation is to be released to review the tax regime of non-resident companies that receive taxable income from the UK. In the spirit of making tax equal, it is the intention to bring the non-resident companies into the corporation tax regime.
The tax on insurers will increase by 2% to 12% from June 2017.
For further information, contact: Barry Soraff barry@raffingers.co.uk
All Change for the VAT Flat Rate Scheme The VAT Flat Rate Scheme (FRS) was designed to make VAT reporting less complicated for smaller businesses. However, at the Autumn Statement the government declared a new 16.5% VAT FRS for businesses with limited costs, which will commence on 1 April 2017. Currently, a business is classified as a low cost trader if its VAT inclusive expenditure on goods is: • Less than 2% of their total expenditure; OR • Greater than 2% but less than £1,000 per annum; Businesses must be aware that the amounts spent on goods cannot include: • Food and drink • Capital expenditure • Vehicles This begs the question as to what is a “good” under the new rules. The Autumn Statement included certain exclusions but did not clarify the exact definition. The best we can do at the moment is to refer to the definition of goods in the VAT legislation (section 4.4 of VAT Notice 700), which is ‘anything tangible’ (a moveable item). So if you purchase a software licence online, this is classified as a service. However, if you go into Currys and purchase a software licence in a box, that is a tangible good. One further point to remember is that water, gas and electricity are classified as goods for VAT purposes. Going forward, all businesses, current and prospective users, will be required to complete a test to determine their eligibility. This is particularly bad news for many industries, such as estate agents who currently use a rate of 12%, or consultants who currently use a rate of 14%. Though, what is more frustrating about the imminent terms is that the 16.5% standard flat rate of the gross turnover is really equivalent to 19.8% of net, meaning that there is no real saving when compared to the standard VAT accounting model. Recommendations Any users or prospective users of the VAT FRS are likely to be affected. All businesses should be aware of the changes and I urge you to speak to us as soon as possible to evaluate if the VAT FRS is still the most cost effective option for your business. For advice on the best solution for your business, contact Andrew Coney at andrew@ raffingers.co.uk.
Your Business Your Business Our Our Passion Passion
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The Modern Slavery Act: What you Need to Know The Modern Slavery Act aims to increase transparency in supply chains. Businesses that supply goods or services and have a turnover of £36million or more are affected and will need to prepare a slavery and human trafficking statement for each financial year of the organisation. With the threshold so high, many UK businesses are of the view that the Act is not relevant to them. However, even if you are not directly affected, your customers or suppliers may be. This means that as you are part of their supply chain they may be looking to you for assurances about your practices. Complying with the regulations therefore puts you one step ahead, your customers know they can trust you, you are more likely to be selected for preferred supplier lists and you appear more legitimate to larger suppliers and customers. Whether you are affected or not, it is important that you are aware of the following key points: What is Modern Slavery? Modern Slavery is defined by the Act as offences of “slavery, servitude and forced or compulsory labour” and “human trafficking”. The guidance points out that it is difficult to be certain at what point “poor working practices and lack of health and safety awareness seep into instances of human trafficking, slavery or forced labour in a work environment”, but it does highlight where the line is to be drawn. If a worker chooses to work in undesirable conditions, without being forced to and can leave freely without repercussions, this is not seen as modern slavery. In 2015, 289 modern slavery offences were prosecuted, and there was a 40% rise in the number of victims referred for support. Modern slavery is very much a reality and acknowledging this will help you to avoid it. Those Affected Businesses that supply good and services and have a turnover of £36million or more must submit a slavery and human trafficking statement. This statement must disclose:
• What steps have been taken to ensure that human trafficking is not taking place at the organisation or in any of its supply chains, or • That no such steps have been taken
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Even if you are not directly affected by the Modern Slavery Act, your customers or suppliers may be. Penalties? As of yet there are no legal penalties for noncompliance, but there will be significant reputational damage. Who Should be Worried? Those sectors most at risk are hospitality, food processing, construction and manufacturing. However, recruitment agencies that service these sectors must also take note both for their own organisation and that of their client’s. What you Need to do Now? 1. Identify your organisation’s turnover to see if the Act does apply to you 2. Do not forget that the Act can apply to organisations where the profits made are being used for charitable purposes 3. Understand your supply chains. This will help you to produce an effective statement if you do comply or if you do not comply yet, helps you to take steps to build yourself as a reputable company to your suppliers and customers 4. Know when your business deadlines are. Currently the requirement applies only in respect of financial years ending on or after 31 March 2016 5. Begin looking at your contracts with your suppliers and make sure these are sound. You can even insert new anti-slavery provisions if necessary
For further information, contact: Adam Moody adam@raffingers.co.uk
Four Issues Recruitment Agencies: Four Issues Hindering Growth There has been a huge rise in the number of recruitment agencies in the UK, but with fatal mistakes being made, more and more agencies are struggling to stay afloat. Here we look at the top four issues hindering growth.
1. Fundamental Funding Issues Funding and maintaining a healthy cash flow are critical factors to consider when running any business; however for a recruitment agency these factors are particularly important. Too often, directors do not evaluate their financial forecasts in enough depth and as a result will take more money out of the company than what is feasible, resulting in cash flow problems early on. This is a very quick way to lead your agency straight to failure, so ensure you seek professional advice to assess your dividend vs. salary ratio when deciding on the most tax efficient way to remunerate yourself. This has become even more essential since the tax increase on dividend income last year.
2. Excuses, Excuses The second of the four issues hindering growth is not to make excuses. Too many recruitment agencies are using ‘skills shortages’ as an excuse as to why they are not able to match candidates and employers as accurately as they would like. Sourcing the right candidate, although an undeniably difficult process is still possible and excuses should not be made before trying to fill a role. One way in which directors can improve on targeting the right candidates is through investing more time and money on training their recruiters. Landing the perfect candidate for the perfect job by a 100% match is just not possible;
instead, training your recruiters to be able to match candidates by 70% to a role is more realistic and beneficial all round. Having a 70% match allows room for candidates to learn and grow within a company, often leading to them staying at a company for a longer period of time. Win. Win.
3. Lengthy Recruitment Process Your recruitment agency may have the best recruiters in the field, but if your hiring process is inadequate, then your agency will not get very far. The best way to ensure your recruitment process is user friendly and effective is by testing it yourself, and regularly reviewing it. Often, recruitment agencies will over complicate their hiring process, which can confuse applicants and put them off applying through you. In short, your hiring process should make it easy for candidates to apply for roles, have a clear and specific job description and realistic time scales.
4. Poor Communication Both you and your recruiters must not lose sight of the most important factor that keeps your recruitment agency going – your clients and your candidates. When a vacancy opens up, it is common for recruiters to become complacent and after receiving a large influx of CVs, fail to keep in contact with the potential candidates. Poor communication will drive candidates away. In addition, you need to be keeping your clients updated at every stage. Lack of communication can be extremely frustrating for your clients and candidates, having a negative impact on your brand and on any repeat business. Therefore, you need to establish a communication process and ensure it is adhered to.
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Raffingers Upcoming Events Fancy Some Free Cash for Your Business?
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March 2017
To attend any of our events contact lauren@raffingers. co.uk.
Where: WeWork, 1 Primrose Street, London, EC2A 2EX When: 6pm-7pm Did you know thousands of companies are eligible to claim money back from HMRC and aren’t doing so? This money is available through the R&D Tax Credit Scheme and despite what you might think; it’s not just for tech companies.... In the last year alone, we’ve managed to claim money back for businesses in design, recruitment and the arts. You could be leaving serious money on the table if you don’t check it out for yourself! To find out if you can claim, join us on 1 March at 6:30pm at WeWork, Spitalfields.
Lunch and Learn: Simplifying Your Finances
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March 2017
Where: WeWork, 1 Primrose Street, London, EC2A 2EX When: 1pm-2pm Have you heard about HMRC’s Making Tax Digital (MTD)? MTD will require all businesses to keep their financial records digitally and submit these to HMRC quarterly. But, it is not all bad news. It will also allow you to use cloud accounting software to transform your business. With everything in one place, you can view your financial figures whenever you want, spot trends in your data and forecast for your year ahead. For the first time ever you will have complete visibility and control over your finances. Join us on 29 March to see how you can benefit.
Join us at our first Charity Ball and help us raise awareness and much needed funds for Pancreatic Cancer Research Fund and Ovarian Cancer Action. Tickets: £75 per person, or, tables of 10 are available for £700 (includes three course dinner and live band). We are also looking for sponsors and donations: If you would like to donate an item for our auction or purchase an advert in our Charity Ball Brochure (prices start from £50), contact lauren@raffingers.co.uk.
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Beware of Fraudulent Emails “From HMRC” In the last few months many of our clients have been the subject of scam emails, supposedly from HM Revenue & Customs (HMRC) declaring that they are eligible for a tax refund. These phishing emails ask for confidential information, such as a full address, postcode and specific figures. If you have an email and are unsure whether it is from HMRC, then do not open it, and if you already have, then do not click on any of the links or attachments. Due to the frequency of these emails and the number of people that are falling victim, it is important that you are vigilant.
How to Tell if an Email is Fraudulent Spelling and Grammar: Often fraudulent emails will be full of spelling and grammatical mistakes. If this is the case, then the email is not from HMRC.
Urgent Action Required: HMRC will never in an email ask for a reply or the links to be completed immediately or in a short time frame. For example, ‘you only have three days to reply’ or ‘urgent action required.’ Common Greeting: An email from HMRC will greet you with the name you provided to them when you signed up. If the email greets you with ‘Dear customer’ then you know that it is fraudulent. HMRC will always start an email with your full name. Attachments: Be wary of emails that contain attachments. These attachments could contain a virus which is designed to steal your personal information. If you have received an email from HMRC and are unsure of its authenticity, contact:
Asking for Personal Information: HMRC will never email you to:
• Notify you of a tax rebate • Offer you a repayment • Ask you for personal or confidential information,
Suda Ratnam 020 8418 2681 suda@raffingers.co.uk
such as your full address, postcode, unique taxpayer code or your bank account details
Raffingers Foundation Thank you to everyone that has supported us in 2016, helping us to raise a massive £3,520 for Pancreatic Cancer Research Fund and Ovarian Cancer Action. Our latest fundraising attempt saw our team put on a cake sale in our local offices, raising £221.
£3,520 Raised so far
To get involved or to donate, visit: www.raffingers.co.uk/community.
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How to Reduce Your Business Rates Business rates are the second biggest tax you pay. Yet did you know that if you are a landlord or tenant paying more than £20,000 in business rates then you may be eligible for a refund, even if you have appealed before?
Employee Spotlight In this slot we introduce you to a valued member of our team, allowing you to put a face to a name. This quarter we speak to our Cloud Assistant, Daniel Stopp.
Name: Daniel Stopp Email: daniel@raffingers.co.uk Career: After completing my A-Levels I worked for a telecommunications company for a year. I then moved to my first accountancy practice where I worked for two and a half years. It was here that I developed a passion for cloud accounting. I then joined Raffingers in June 2016 as a Cloud Accounting Assistant. I am currently studying towards AAT Level 4 and plan to move on to ACCA once I have finished. Interests: I play league cricket as an opening batsman for Harlow Cricket Club and also play Sunday League Football for Risden Wood FC. I am also an Arsenal fan and try to go to as many home games as possible. When I am not working or playing sport, I like to spend time with my girlfriend in Sweden. I am also learning the Swedish language. Partners Report: Dan joined us back in June last year and I do not know what we would do without him. Dan has taken on his own portfolio of clients with ease and has been an instrumental part of the cloud team and the enablement process. Dan has great knowledge of cloud accounting and with his eagerness to learn and his great attitude to work, we know he is a great asset to the team.
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Business rates are calculated based on a rental valuation of your property. This is called your Rateable Value and it is set by the Valuation Office Agency (VOA). The VOA is meant to be as accurate as possible in setting Rateable Values, but they can be wrong. We have teamed up with a provider, Six Forward, to help our clients confirm whether their business rates are right and whether they can make savings. Did you know that business rate periods usually run for five years? The current period which started in 2010 was extended for two years due to the 2015 general election. This means that from 1 April 2017 the VOA will be updating the rateable value of all business properties. You can no longer appeal the period 2010 to 2015 as this period is now closed by the VOA. You can however appeal your rates since the period started in 2015 to 2017 and now is the time to see if you are eligible for a rebate. Additionally, when the new ratings period begins in 2017 you will have to appeal again to make savings for the future. The government is operating stealthily by not bringing the savings directly to the attention of landlords and tenants. Through Six Forward you can appeal your business rates and benefit from:
• Six Forward will carry out a no obligation analysis to see whether your business has the possibility to claim. There is nothing to pay up-front. • If Six Forward deems you eligible and you are happy to go forward, Six Forward will engage with the VOA as your agent. • During the process you will be provided with regular updates in line with the new VOA: Check, Challenge and Appeal Process. • Six Forward has an 85% success rate due to their relationship with VOA. • With Six Forward you will not pay standing fees nor be tied in for long periods at no value to you. You will only pay a fee if a saving is made. • Six Forward deliver a managed process to help reduce overheads and enhance profitability. For more information, contact Barry Soraff at barry@raffingers.co.uk.
Making Tax Digital: Opportunity or Threat? BLOG
Blog by Lee Manning, Partner
HM Revenue & Customs (HMRC) has confirmed that it will be going ahead with Making Tax Digital (MTD) from April 2018. Sole traders and buy-to-let landlords will be the first to be affected, with a major pilot to be launched this April. MTD will use cloud software to submit quarterly information to HMRC, which will mean all businesses will need to have their bookkeeping records on a cloud bookkeeping package. As these packages are becoming more intelligent, the traditional bookkeeping services will more than likely be automated and businesses will be looking to their accountant for help to implement the systems and provide the necessary training. When MTD was first announced, many accountants were worried as it appeared their core compliance driven service was going to be significantly reduced. However, I personally saw it as a huge opportunity to be able to, at last, provide businesses with proactive advice to help them succeed at a cost that is reasonable. As the cost for dealing with the day to day bookkeeping will reduce, businesses will be able to afford to pay for more valuable services, such as help with their pricing strategy, a review of their internal systems and efficiency improvement suggestions using the latest technology. In addition, MTD will enable accountants to finally deliver up to the minute financial information, financial forecasts to show where improvements can be made in the future, a complete financial review to ensure the business owner is planning for retirement, help with estate planning and finally be a virtual finance director for businesses no matter how small they are. I’m sure MTD will come with its own challenges, but in the long run business owners will benefit as long as their accountant has evolved their service offerings, and are experienced enough to provide the advice that business owners expect from its trusted advisor.
Making Tax Digital is a government initiative that sets out a vision for ‘a transformed tax system and the end of the tax return’ by 2020. The aim of the initiative is to make tax administration more effective, more efficient and easier for taxpayers, through the implementation of a fully digital tax system.
Making Tax Digital is a huge opportunity to be able to, at last, provide businesses with proactive advice to help them succeed at a cost that is reasonable. - Lee Manning, Partner
For further information about MTD and migrating to a cloud bookkeeping package contact:
Lee Manning 020 8418 2662 lee@raffingers.co.uk
Your Business Our Passion
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Looking to Raise Capital?
Financing has become a competitive business with the investors or institutions that own or manage these funds now having an obligation to be more responsible. Consequently, raising and securing a capital base for any business, particularly SMEs, is becoming even more challenging, but necessary for the advancement of even the greatest ideas to develop and grow. Clearly these challenges to raise the necessary capital are not all external; the entrepreneurs are not without responsibility in their lack of funds. Typically, some SMEs have, over time, displayed poor management as well as a poor maintenance culture of their current facilities. This has hampered their ability to raise and retain finance. So, what are the options when considering raising finance? High Street Banks. These are the primary source of funding for start-ups’ financing debt. In recent years there has been a perception that banks do not lend; however, banks are certainly open for business, with sufficient area funding and bespoke solutions available for SMEs who have sound business ideas, direction and strong support teams. Asset Finance. Hire/Lease Financing allows equipment to be purchased without the need for a large capital outlay from a limited cash resource. This enables businesses to utilise cash resources efficiently to fund
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the current business operations. This is unlikely to be an option for all start-ups, but one to be considered further down the line. Invoice Finance. Invoice financing enables the release of funds currently tied up in outstanding customer invoices, ideal for providing a cash flow injection for working capital management. This area of lending is a more affordable and flexible way of financing, with agreements normally built around a 30 day rolling contract. Crowd Funding and P2P Lending. Generally online platform based lending, enables many small lenders to pool their cash investments together, giving enterprises an alternative pool of finance to banks. These funding pools will set out to match their own risk criteria with that of the businesses seeking funds, and ultimately the returns required on those funds invested. The Business Angels. This type of funding reflects a range of models and approaches, such as angel networks, small groups and syndicates, and is ideal for business owners looking for more than a funding solution, but also for strategic support and contacts. Venture Capitalists and Private Equity. Essentially capital finance provided in return for an equity stake in potentially high growth companies. Business Grants. This is a highly overlooked source of funding and broadly fits into one of three categories:
• Government grants • European grants • Local grants Each scheme has its own set of criteria to determine whether a business can be considered for this type of investment. Friends and Family. The cheapest form of finance, but with potential problems which may affect longterm relationships. Other Methods. Commercial mortgages, mezzanine finance and, that all important working capital management. Before applying for funding it is important to be aware that a poor credit score, a lack of personal guarantees and a poor financial management history, are serious barriers for business owners looking to secure funding. Furthermore, the business model or indeed the individual may be deemed a high risk due to a lack of trading history or sufficient asset base. A high proportion of applications are turned down by banks, but mainly due to a lack of clear direction by the business owners or even a poorly assessed management support network. Understanding the requirements of lenders and being open to the range of finance options will enable SMEs and start-ups’ to overcome these financial hurdles.
The Business Idea and Plan. Investors and loan providers will want to review the business idea and plans, and assess the likelihood of profitability and return. A continually updated business plan is therefore essential. Matching a Lender to Your own Funding Requirements. What financial option best matches the needs of your business. Some funding organisations and investors favour specific business models, so do your research to see if a funder has a history of investing in a particular sector. Also are you willing to dilute your own equity and control? Is the Entrepreneur Ready? People buy from people. Following the global recession, ensuring you can provide the business confidence, passion and the vison is all the more essential. Research your funding sources to ensure it is the best solution for you and the stage your business is at. Whether you are looking to start a business or are an established business looking to take that next step, please contact our Associate Partner for any funding advice:
Roy Butcher 020 8418 2673 roy@raffingers.co.uk
How to Assess Your own Viability: -
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BLOG
Recruitment Sector Shake Up: IR35 Changes a Reality
I was eager to hear Philip Hammond’s first Autumn Statement to Parliament, in particular his response to the proposed IR35 legislation. You may recall my blog back in July, IR35 Reform up for Discussion. At the time I reviewed the consultation concerning the IR35 changes and said: “My only concern, as we have seen in the past, is that despite extensive lobbying and “there is no way they can pass this” comments, the government has a way of passing significant legislation that has a substantial impact on a lot of business owners.” The Autumn Statement confirmed that I was right to be concerned. From April 2017, off-payroll working rules in the public sector will be reformed. This means that agencies will now be responsible for ensuring that one man band companies, namely Personal Service Companies (PSCs), are paying the correct tax and NICs. The legislation is aimed at tackling noncompliance with the current rules and aims to ensure that anyone working through a PSC in the public sector will pay the same tax as employees. In summary, agencies will be responsible for assessing whether IR35 should apply to each PSC. If an agency were to decide that the IR35 rules did not apply, HMRC could challenge their assessment and then assess any tax and NI on the agency. In reality I think this means that it is highly likely that agencies operating within the public sector can no longer allow their contractors
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to work via their own limited companies. What’s more, those caught within the IR35 legislation and working within the public sector will no longer be entitled to the 5% tax free allowance. The allowance was given to take into account the administration burden for ‘on-going running costs’. However, as contractors will no longer be responsible for calculating their pay, the government has decided to scrap the allowance altogether. Consequently, the impact of these changes will most likely mean the end of PSCs in the public sector. There will be no financial benefit whatsoever for a contractor to operate under a PSC and they may even be worse off for doing so. It also means that agencies are going to have a lot more responsibility and work. I suspect that this change is just the beginning and it will only be a matter of time before the new rules apply to all PSCs, not just those in the public sector. Some other changes that came from the Autumn Statement, which you should be aware of are: • Disguised remuneration avoidance targeting. The government is extending the changes announced at the Budget 2016 to tackle the use of these schemes by the selfemployed. • VAT Flat Rate Scheme (FRS). From April 2017, a new 16.5% rate on the FRS will be introduced for businesses with limited costs.
IR35 Changes: Minor Breakthrough Finally a bit of good news for the recruitment sector. Whilst it is not the news many would have hoped for, it is somewhat of an IR35 breakthrough. Thanks to APSCo’s extensive lobbying the IR35 changes have altered course slightly. In the IR35 draft legislation, released on Monday 5 December, it was announced that the end user, or public sector body, will be responsible for determining whether the PSC falls under IR35 or not: “Public sector bodies will be responsible for determining whether or not the rules apply and will be required to share this information with agencies in order for them to operate the rules correctly.” (Overview of Legislation in draft) Agencies remain responsible for deducting the correct employment taxes, but at least this change takes some of the pressure off with the public sector body being the one that ultimately decides whether IR35 applies. APSCO’s response: This is targeted at businesses who spend less than 2% of their VAT inclusive turnover on VAT inclusive goods. Consequently, the tax advantage of operating the VAT FRS is likely to disappear for most contractor companies. • From April 2017, the National Living Wage will increase by 4.2%, from £7.20 to £7.50. • Employers and Employees National Insurance are due to be equalized at £157 per week. • Tax savings on salary sacrifice and benefits in kind to be stopped. For more information read our article, Salary Sacrifice Benefits Soon to be Limited. I have already advised a number of clients and will be working closely with the recruitment sector in the coming months to help it to get to grips with the new legislation. If you have any questions concerning these updates (in particular the IR35 changes) and how you should begin to plan and prepare for them, contact: Blog By Gary Inglis Managing Partner gary@raffingers.co.uk
“While the draft legislation is pretty much as we expected in that it removes contractors from the scope of IR35 and makes this new legislation applicable instead, we are pleased that HMRC has, at least, taken on board APSCo’s lobbying arguments for a statutory obligation on the public sector client to make the determination to decide whether, if the worker was engaged directly s/he would be an employee for tax purposes, and that this information must be notified to the intermediary. This is a really important point because in reality, for a recruitment firm to be able to start the process, they need to know how much they can pay the worker – and what models they can use. “However, while HMRC has listened to APSCo, there is no time frame specified for the provision of this information. What the draft legislation does say is that the recruitment firm can request the determination if it is not received – and that the public sector client must provide it within 31 days. The recruitment firm can also raise queries on the decision but again the public sector client has 31 days to respond. The draft legislation does not pass the liability for the determination on to the public sector client unless they simply fail to provide the information after a request.” It is good to see that some of the responsibility has shifted and will be shared more equally. However, agencies will still need to ensure they are proactive in their approach to IR35.
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