So Philip Hammond has now released his Autumn Statement 2016, his first as Chancellor; and it has come as little surprise that the contracting industry will be significantly impacted after the announcements made on Wednesday 23rd November.
Although the Chancellor did not vocalise these changes during the speech itself, there are a number of proposals that will come into place in April 2017. Not only will contractors have to consider their next move over the next six months; recruiters will have to consider the potential impact to their business.
Here is a brief outline of the proposed changes in the Autumn Statement 2016 that may impact your agency and your temporary workforce.
National Insurance Contributions and NLW
From April next year, the national living wage will increase to £7.50 per hour from £7.20 in which it currently stands. National Insurance thresholds are to be made consistent at £157 per week for both employees and employers. Recruitment agencies that work with temporary workers paid close to the NLW will need to factor the increase in hourly wage when considering their rates and ensure the appropriate ‘uplift’.We are able to offer guidance with pay rates to ensure that all contractors are being paid compliantly and fairly.
IR35 and the Public Sector
This has been the main focus for the industry as from next year; the liability for IR35 within the public sector will be with the “paying agent’s” and no longer a provision decided upon by the contractor.If your contractors work within the private sector, then this will not affect you – yet. It is thought to eventually might roll across to the private sector too.
The removal of the 5% tax-free allowance will also impact public sector contractors running their own limited companies if they are inside of IR35.
Although we can’t be certain to how agencies will handle this situation yet, we are aware that there will be an adverse reaction to the reform. Whether it is dictated that all contractors fall inside IR35 or endeavoured to carry out additional due diligence, we will be speaking with recruiters to get reactions and feedback. We will also share IR35 advice, and to calculate payments for contractors if IR35 does apply, providing insight and support for concerned agencies.
As an affiliate of Professional Passport and PRISM, we are working with them for compliant solutions that contribute to this transformation of the public sector in April 2017.
Flat rate VAT scheme
The government have introduced a new 16.5% rate for VAT flat rate scheme for limited costs traders from 1st April 2017. The Autumn Statement 2016 confirmed that the intention is to ‘help level the playing field’ for businesses with limited costs, however, this is bad news for contractors (most of them will be classified as limited costs traders) as it essentially removes the benefit for the FRS, which currently is being utilised by many. Therefore many contractors who operate inside IR35 will no longer see an additional benefit by going down the limited company route from April 2017. Together with the ineligibility to claim travel and subsistence expenses, the benefit for contractors who are inside of IR35 to incorporate (compare to using an umbrella) has almost been nullified.
The government have decided to withdraw the option for Employers to offer salary sacrifice schemes which previously offered tax advantages to employees. Going forward only pensions, childcare, Cycle to Work and ultra-low emissions cars will be allowed. Any other existing arrangement for salary sacrifice to increase take-home retention will be protected in a transitional period until April 2018. Accommodation, school fees and company cars are currently protected until April 2021.
The government continue to stand by their crackdown on tax avoidance schemes, introducing new penalties for any person who has enabled another business/individual to use a tax avoidance arrangement that is caught by HMRC. This will also be relevant to recruitment companies that indulge their temporary workers with the facility to tax avoidance schemes. It is then imperative that agencies are confident and comfortable with their approved suppliers otherwise you may also be faced with penalties.
It is the manner in which these changes are implemented and facilities that can be provided throughout the supply chain that will allow for compliance and continual growth for your agency. We understand the impact that this has on our contractors and we endeavour to support each client, consultant and contractor individually.
We are currently compiling more detailed articles and are waiting for the draft legislation to be released on 5th December, which we will send to you with further guidance in due course over forthcoming weeks.
Should you have any questions regarding the Autumn Statement 2016 or would appreciate a visit to your offices by myself to chat about the forthcoming year, then please give me a call on 0207 078 0212 or pop an email to [email protected]