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Summer Budget reactions

Chancellor George Osborne outlined the plan to cut corporation tax to 19% in 2017 and by another 1% the following year.

Those with annual profits of more than &pound20m will also see tax payment dates brought forward in order that “tax is paid closer to the point at which profits are earned.”

Recruitment companies in all sectors of the industry will welcome the news of the tax cut and smaller agencies are especially set to benefit from the reform.

The National Minimum Wage for over 25’s is also set to rise to &pound7.20 an hour from April 2016, which will also impact the fiscal affairs of companies, while the apprenticeship levy will also impact larger firms with apprenticeship schemes.

So, what does the industry think about the Budget. Below is a selection of opinions from recruitment, supplier and employment organisations.

Samantha Hurley, head of external relations and compliance at APSCo, said, “Mr Osborne made a number of announcements in relation to employment taxation and National Insurance which are relevant to the professional recruitment sector including, of course, the anticipated consultation on travel and subsistence tax relief. The Government proposes removing tax relief on home to work travel and subsistence for those workers who are engaged through an employment intermediary, and who are subject to supervision direction and control. As we have commented previously, APSCo feels that this appears to be a reasonably sensible way forward, and this approach will bring this tax relief in line with IR35 legislation and the 2014 changes to the Income Tax (Pensions & Earnings) Act.

“The Chancellor also announced that while Government recognises that many individuals choose to work through their own limited company, it feels that the current IR35 legislation is not effective enough and has asked HMRC to start a dialogue with business on how to improve the effectiveness of the existing IR35 legislation.  APSCo is due to meet with the IR35 Forum in two weeks’ time and this will obviously be a major topic for discussion. The simplification of the tax credit system for dividends which is due to be implemented from April 2016 could well have a significant impact on those people working through a personal services company. The Government is planning to replace the system with a dividend allowance of &pound5,000 with dividend tax rates then of 7.5% for basic rate taxpayers, 32.5% for higher rate and 38.1% for additional rate taxpayers.“ 

John Cridland, CBI Director-General, said, “This is a double edged Budget for business. Firms will welcome measures to balance the books and boost investment, but they will be concerned by legislating for wage increases they may not be able to deliver. Firms have been unwavering in their support for the Chancellor’s deficit reduction plans and will welcome the clarity that the new fiscal rules provide. Other standout measures include making the Annual Investment Allowance permanent at &pound200,000, which the CBI called for, as well much-needed investment in our roads network.

“The further reduction in corporation tax is a welcome surprise but tax reductions for employers don’t appear to match the businesses most affected by a rise to &pound7.20 in the National Minimum Wage next April – a 7% increase. The CBI supports a higher skilled, higher wage economy, but legislating for a living wage does not reflect businesses’ ability to pay. This is taking a big gamble that the labour market can absorb year-on-year increases of an average of 6%.”

Lee Biggins, managing director of CV-Library, said, “The announcement of reduced corporation tax in today’s budget is good news for the recruitment sector, offering more scope for job growth and expansion. That, combined with the introduction of increased Sunday trading hours is great news for businesses and employees alike and we expect to see a continued rise in jobs over the coming months. However, the introduction of a National Living Wage is likely to oppose these positive changes. Despite it being a good introduction for those in low-paid jobs, it is likely to cause a contraction in job growth due to the increased funds that businesses will need to invest in higher wages.”

Derek Kelly, managing director of contractor accountant ClearSky and umbrella employer Parasol, said, “Today’s announcements suggest the government is moving in the right direction in its efforts to stamp out abuse by cowboys operating at the low-paid end of the temporary labour market. We are currently assessing the likely impact of the various reforms on professional contractors and our partners in the staffing industry. As always, we won’t have the full picture until the legislation is published. As a well-established provider with a track record of managing legislative change, we will be on hand to offer assistance and guidance over the coming months.”  

Julia Kermode, CEO of FCSA said, “The Chancellor claimed to be delivering a budget for hardworking people but to some extent is penalising some of those workers by clamping down on dividends that directors of their own limited companies can draw down.   However, we welcome the news that corporation tax is being reduced which will help our members, the personal service companies that they support, and their businesses to grow. Last week I was pleased to see that entrepreneur Julie Deane of the Cambridge Satchel Company has been tasked with reviewing self-employment which suggests the Government is keen to highlight the contribution the self-employed make to the UK economy and consider how they can be better supported and we welcome that move.  Any efforts to better understand and serve this important group of workers is a good initiative because Government seems confused by this growing community as many of its policies conflict with each other.

“We noted that IR35 was again mentioned and we watch any review with interest and expect to play an active role in any future dialogue. We also welcome the Chancellor’s commitment to invest in HMRC staff and its capacity to deal with any avoidance, evasion and tax loopholes.  FCSA and its members are committed to stamping out any bad practice and upholding high standards at all times. As expected the Travel and Subsistence Consultation has also been published today and it is broadly as we expected we will be responding to it in due course. I am also pleased to see the commitment to increasing business confidence and driving up employment – for example the potential for longer Sunday opening hours should help create more jobs and opportunities.”

Following the announcement that there will be a consultation to discuss the removal of tax relief for home-to-work travel and subsistence expenses for workers who are engaged through an employment intermediary, such as an umbrella company, Matthew Brown, managing director of giant group, has responded. He said, “Fully compliant umbrella employers play a critical role in the supply chain of contingent workers. Not only do they ensure that contractors have full employment rights for the numerous assignments that they work on, but also that they are fully tax compliant. Consequently, they contribute millions of pounds every year to HMRC. However, unfortunately the reputation of these compliant organisations has been tarnished by the small minority of firms which have sought to fly in the face of national minimum wages and expenses legislation.

“Whilst we welcome the crackdown on these firms, we urge the Government not to use a sledgehammer to crack a nut. An unintended consequence of a broad brush approach could lead to compliant organisations, that play a key role in the ongoing success of a number of stakeholders - not least HMRC - being inadvertently punished. We would also inevitably see a rush of workers into the limited company model which would push the spotlight onto that particular mode of engagement. In fact, Chancellor Osborne also announced that the Government has asked HMRC to take another look at the effectiveness of the current IR35 model. We must hope that there is a considered approach that does not affect the functionality of the UK flexible labour market, particularly at a time when data shows that companies are choosing flexible labour over permanent labour. If anything, the UK should be enhancing this method of working so that companies are more dynamic which would naturally only aid the UK’s growth prospects.”

Samantha Hurley, head of external relations and compliance at APSCo, said, “Mr Osborne made a number of announcements in relation to employment taxation and National Insurance which are relevant to the professional recruitment sector including, of course, the anticipated consultation on travel and subsistence tax relief. The Government proposes removing tax relief on home to work travel and subsistence for those workers who are engaged through an employment intermediary, and who are subject to supervision direction and control. As we have commented previously, APSCo feels that this appears to be a reasonably sensible way forward, and this approach will bring this tax relief in line with IR35 legislation and the 2014 changes to the Income Tax (Pensions & Earnings) Act.

“The Chancellor also announced that while Government recognises that many individuals choose to work through their own limited company, it feels that the current IR35 legislation is not effective enough and has asked HMRC to start a dialogue with business on how to improve the effectiveness of the existing IR35 legislation.  APSCo is due to meet with the IR35 Forum in two weeks’ time and this will obviously be a major topic for discussion. The simplification of the tax credit system for dividends which is due to be implemented from April 2016 could well have a significant impact on those people working through a personal services company. The Government is planning to replace the system with a dividend allowance of &pound5,000 with dividend tax rates then of 7.5% for basic rate taxpayers, 32.5% for higher rate and 38.1% for additional rate taxpayers.“ 

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