Simplicity warns of implications of using umbrella companies after T&S changes
Simplicity has issued a warning to recruitment agency owners using umbrella companies and the implications of the changes to Travel and Subsistence claims from 6th April this year.
David Thornhill, managing director at Simplicity, said, “Trust is an essential ingredient to any long-term business relationship, yet it seems that many recruitment business owners working through an umbrella company are not being told the full story regarding the impending changes to the legislation affecting Travel and Subsistence (T&S) claims.
“Part of the reason is that an element of confusion (and hope) exists among many umbrella providers as to whether or not the lobbying process that has been taking place since last autumn, will succeed in persuading a last minute reprieve by the government, unlikely though that is.
“Then there is the suggestion that because the Umbrella business model will change beyond all recognition from 6th April, with the mainstay of services they currently provide effectively becoming obsolete, providers are keeping quiet for now at least over how these changes will affect their clients i.e. recruitment agencies.”
Simplicity say the changes, which will restrict the way in which temporary workers working through an intermediary can claim tax relief on T&S expenses, have been contentious ever since the Chancellor announced their introduction back in the autumn.
There are attempts being made to persuade the government to hold fire and review the legislation. Simplicity state that, given the Chancellor’s commitment to clamping down on unpaid tax, however, there is little prospect of that happening – the changes are happening and as a recruitment business owner you need to be careful and ensure you fully understand the implication for your business.
There are four critical reasons you need to be mindful of, according to Simplicity:
1. Third party debt transfer: If you are a recruiter referring your workers to an umbrella provider, you need to ensure they are operating compliantly. If they are operating outside of the rules, the risks to you as an agency can be substantial – if the right amount of tax is not paid then HMRC could pursue third parties for the unpaid debt if there is evidence that fraudulent documentation has been provided.
2. Anti-Avoidance: The new legislation means that the Targeted Anti-Avoidance (TAAR) rules now apply to all tax avoidance schemes such as those where there are arrangements in place that create some form of tax advantage, such as creating or increasing relief for expenses.
Simply changing the status of a job description, for instance, does not mean that you will be excluded from the new legislation. Indeed, we have become increasingly aware of some umbrella providers amending a contractor’s job title and description. But if that person is seen to be doing the same job across a number of different companies, HMRC will simply assume they are doing so under Supervision, Direction and Control and the correct taxes will need to be paid.
3. Insurance: The role of the umbrella company could be set to change on 6th April. For those contractors who don’t or have never claimed expenses then it will be business as usual. However, for those who do make expenses claims, they may soon find that the services their current umbrella provider offers today could change significantly. Yet many existing providers – perhaps in a bid to create new revenue streams before their existing business is turned on its head – are now selling insurance. But insurance against what exactly?
No insurance in the land will protect you from the incurring hefty fines and even a prison sentence if you have fallen foul of the law – it’s like saying that your car insurance will shield you from having your driver’s license suspended if you are caught driving three times over the speed limit in a pedestrianised zone.
4. CIS: Many people would appear to be revisiting the Construction Industry Scheme (CIS) – a scheme which was introduced to relieve the administrative and related cost burden on construction businesses; thereby enabling them to subcontract work and achieve gross payment status and improve cash flow.
However, the construction sector has faced high levels of false self-employment, with the recruiter or the CIS payroll company determining if the worker is self-employed or not. The onshore employment intermediary’s legislation, which came into effect in 2014, puts the burden of proof on the agency.
So if the recruiter does not believe that it is subject to this legislation because there is no control or direct supervision (SDC), it will need to prove otherwise. That’s why it’s important to document your processes in the event that you need to demonstrate how you reached a decision on whether a contractor is subject to SDC.
The changes that are coming into effect in a few weeks will have a profound effect on the way in which recruiters work. This is not a time to wait-and-see how things pan out – the government is clamping down harder than ever before and there are no excuses for not ensuring you understand exactly what these changes will mean for you.
If you don’t get on board with the new legislation the consequences both to your finances and your hard-earned reputation could be catastrophic.