In the Autumn Statement, the Government announced several changes it intends to bring into Law within the Finance Act 2017. ESCG specialises in solutions advice to businesses involved in the temporary work and contractor industry and has digested the proposed changes, assessed the potential impacts and are bringing these to your attention.
Given the nature of the changes, as will be outlined below, it is safe to presume that the reason for such changes is to reduce what the Government perceives as unfair advantages to certain types of workers within both the public and private sector. With the increase in the number of contrived business models and operations within the temporary work sector in the past year, this comes as no surprise. Most of these newer structures have been established outside the spirit of the law and HMRC has called these out.
ESCG and our clients have always maintained a sustainable, long-term approach to our strategic decisions and the positive results of such decisions are now being realised. While some of the proposed changes will heavily affect the industry and in particular, some of our clients’ competitors, our clients welcome the changes as their offerings and solutions will be minimally impacted.
Please note the following changes:
• The income tax threshold is to be raised from £11,000 to £11,500 from April 2017
• The National Living Wage will increase from £7.20 to £7.50 in April 2017. This increase will mean our clients’ Minimum Billing rates will also increase
• Employee and Employer National Insurance Thresholds will be equalized to £157 per week
• Class 2 NICS will be abolished from April 2018, simplifying National Insurance for the self-employed
• Corporation Tax will fall from 20% to 17% by 2020
Salary sacrifice and benefits in kind
Employers operating such schemes will no longer be able to offer any tax or National Insurance advantages, apart from a few exceptions. None of ESCG’s clients operate salary sacrifice schemes and the temporary workers they engage with will therefore remain unaffected by these changes. Feel free to contact us for more information if you have candidates engaged on such schemes.
Flat rate VAT schemes
The government will introduce a new 16.5% VAT rate from April 2017 for businesses with limited costs, such as labour-only businesses. Businesses using the scheme or planning on using the scheme, will need to complete a simple test to determine whether they should use the new 16.5% rate. This change intends to create a level playing field, while maintaining the accounting simplification for the small businesses that the scheme was designed for.
One of our clients, myPSC, who assists contractors with setting up and managing their own limited companies has begun working on system changes and will be contacting those affected contractors to discuss the best options post April 2017.
ESCG’s other clients, involved in the Umbrella sector, have welcomed the news as they believe that many contractors who are better suited to being employed by an Umbrella company have taken the responsibility of managing and directing their own limited companies for little or no benefit. In fact, over the last year there have been several companies who diversified their business structures in blatant attempts to circumvent and exploit VAT rules.
During this time, our Umbrella clients chose not to invest in exploiting such rules and are proud to announce that all their current offerings remain 100% compliant. Our clients’ will continue to strive to provide levels of service to their workers and clients that are of the highest calibre, and with a level playing field where there is no place for inefficiency, we are extremely confident in their people, systems and processes to take us through 2017.
Following a consultation, from April 2017 the government will reform the off-payroll working rules within the public sector by removing the responsibility of calculating and deducting the correct tax from contractors operating their own limited company and placing responsibility on the business which pays the limited company. The government believes public sector bodies have a duty to ensure that contractors who work for them are paying the correct amount of tax, and will provide a tool to help make assessments.
If the proposals become law, the potential implications for public sector contractors deemed to be within IR35 by the ‘paying business’ are:
• Cash flow reduction as tax and NIC will be withheld at source
• Decrease in take-home pay due to the removal of the 5% tax-free allowance
• Subjected to payments taxed as an employee but still bearing the costs required to manage and direct a company
ESCG’s client, myPSC, has confirmed that they will follow the proposed changes closely and provide further updates once decisions are made on how best to address the needs of workers and their clients.
Should you currently have public-sector contractors on your books, then these changes will have a significant impact on the returns and costs to both your candidates and your agency.
To mitigate these potential losses, we recommend the engagement of one of ESCG’s Umbrella clients to employ these workers. The benefits include:
• It is likely to be more cost effective that using the services of an Accountant • Contractors will have access to a broad range of savings through the Employment Business’s Employee Benefit Scheme
• Statutory employment rights
• Little or no administration when compared to Limited Company
• Insurance is included at no additional cost
• Consistency of pay, without 3rd parties making deductions to invoices
• No agency requirements to assess IR35 or to use the Off-Payroll Tool
• No associated deductions, administration and potential liability of such requirements
• Agencies only need make one single payment for their contractors, as opposed to individual payments to each limited company
• Simplified RTI
Switch of “Budget” and “Statement”
The government has promised to abolish the Autumn Statement and instead, budgets will now be in the Autumn from next year, along with a Spring Statement from 2018.
ESCG welcomes this change as it will allow more time for our client’s to better prepare for any legislative changes from a system and service perspective.
ESCG represents many clients who offer varied solutions depending on agency and contractor’s needs. Their bespoke systems and sustainable solutions that are standing the tests of time will ensure your business will successfully navigate through the new financial year.
For further advice or guidance, please contact a member of our team today.