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Industry reacts to 2016 Budget

The 2016 Budget was yesterday presented by Chancellor George Osborne, and as usual induced mixed reactions from the recruitment industry and employment organisations.

With a million jobs forecast to be created by 2020 and the UK economy expected to grow faster than any other major Western economy, the stance from the Government appears to be optimistic.

There is good news for SMEs with the current 20% rate of corporation tax is set to fall to 17%, while the annual threshold for 100% relief on business rates for small firms is set to increase from £6,000 to £12,000 and the higher rate from £18,000 to £51,000, exempting 600,000 firms.

However, significant points include the confirmation of removal of tax relief on travel & subsistence (T&S) expenses, to be introduced in April, while the IR35 changes currently look set to be for just the public sector, as the Government has outlined that public sector organisations will be responsible for deciding whether the intermediaries legislation applies to an engagement they have with a PSC. Where the services are provided through an agency or other third party it will be the responsibility of the party paying the PSC to assess the position.

SThree’s has responded to the to the PSC clampdown with commercial director, Andy Hallett, commenting, “Whilst we understand the need for every worker to pay their fair share of tax we believe that George Osborne runs the risk of destroying the vital flexible labour market that supports the public sector for the sake of a populist headline. A direct consequence of these measures will be driving talent to the private sector, in turn The Chancellor will then risk having to fund an enlarged and underutilised permanent headcount or use more expensive consultancies to deliver essential services.”

Bridget Wood, a consultant in Mishcon de Reya's Recruitment Services Group, said, “This could be an administrative nightmare for staffing companies. Under the proposals, if a public sector body contracts directly with a personal service company and the public sector body assesses that the assignment falls within IR35, the public sector body must deduct and account for the tax and NICs.  The government is unlikely to drop these proposals altogether, but a potential lobbying stance that staffing companies may take is that this burden should fall on public sector bodies in all circumstances."

Damien Broughton, managing director of Danbro, said, ““This was a good budget for small businesses and it’s great to see the Chancellor delivering a range of incentives that will enable self-employed people to grow and develop. It’s also pleasing to see a number of initiatives that will promote business and improve connectivity across the UK. The one big disappointment was that proposed restrictions on travel and subsistence expenses for those under “supervision, direction or control” will go ahead as planned. We fear this could negatively impact the important contractor sector and put a brake on the economy. We have been part of far-ranging calls for a judicial review of this plan but that has been ignored. We’ve worked hard to make sure our clients who are affected by this will still benefit from working under an employment business but many others are not prepared for these changes. The move to make employers and agencies responsible for deducting tax and national insurance from personal service companies in the public sector is also a worry. This shift in responsibility will cause a lot of concerns among organisations and I fear also heralds a move to make the private sector take on the same responsibilities in the months to come. The Government has pledged to review IR35 – which governs this process – but the lack of clarity on the issue could cause significant issues for self-employed people and employers alike.”

Responding to the Budget statement, Samantha Hurley, head of External Affairs at APSCo, said, “HM Treasury has announced that there is to be a new duty on the public sector to ensure workers who are engaged through a PSC pay the right tax. While we support this in principle, HM Treasury has also said in the small print that when recruitment firms are involved, they will be deemed responsible for assessing employment status for tax purposes and consequently liable for the payment of taxes.

“This is clearly unjust, because determining someone’s tax liability is highly complex.  The IR35 tax rule, which governs the tax paid by PSCs, is not a simple test and requires detailed understanding of many aspects of a worker’s relationship with the client, and of a PSC’s day to day operations.  But recruitment firms simply do not have sight of the reality of the working relationship.  It is, therefore, entirely unreasonable to expect them to make this decision, and be financially liable for it.

“Deeming provisions in tax law have been challenged repeatedly in the courts, and clearly there is a huge principle of fairness that should apply to all tax payers, including recruitment firms.  The proposals seem to totally contradict recent government reviews. The Office of Tax Simplification has just conducted a review of small company taxation and is also undertaking a cross departmental review of tax and benefits relating to freelancers.  Additionally, Julie Deane, CEO of the Cambridge Satchel Company, recently completed an independent review of self-employment for the government. Yet none of these reviews were mentioned today.

“I believe that few, if any, recruitment firms will be willing to take on this type of liability.  This will stop the vast majority of PSCs from providing services to the public sector, significantly impacting its ability to access the specialist skills it so badly needs. The only light is that the proposal is not due to take effect until 2017 and HMRC has announced that it will enter into a consultation process in the meantime. APSCo will consequently vigorously fight this unreasonable proposal on behalf of its members, and will be asking the Government to publish its assessment of the impact this will have on the delivery of public services, because I find it hard to believe they’ve properly assessed the effects.”

Peter Holliday, managing director of Sopra Steria Recruitment, commented on the proposed IR35 changes. He added, “This latest development is onerous for our client organisations, ourselves as a recruitment business and also for the effective continuation of the flexible workforce that is essential to economic growth. The changes to the assessment of IR35 are fundamentally unworkable for the recruitment profession – we do not manage or monitor the day to day activities of the workers, making the assessment process flawed. The tax liability is falling on the shoulders of the wrong organisations. The best way forward is for HMRC to equip themselves to more stringently regulate the original purpose of IR35, use the information provided to them under the Intermediaries legislation, and apply strict criteria when determining how much tax each Limited Company should pay.”

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