With the Budget only days away, the biggest and arguably most contentious issue to be addressed is that of the off-payroll regulations potentially being extended to the private sector. Many agree that if this is extended to the private sector, the effects will be significantly detrimental to businesses as most are simply not ready to implement the changes required.
The extension of this measure is aimed at increasing the tax collected as the Treasury Department claims that many contractors offering services through personal service companies are in fact employees therefore paying less tax than if they were employed directly. However, this regulation may end up end up having the opposite effect if there is a similar fall-out to that which occurred in the public sector. In the months following the implementation of public sector off-payroll regulation there were delays to projects, higher costs to hirers and a shortage of skilled workers in crucial areas.
If the changes are rolled out to the private sector, recruitment agencies will have an increased administrative load on two fronts. First, by being responsible for assessing each contract ,and then, by managing the deduction of tax and NI if a contract does fall within IR35. Both of which are non-core recruitment activities for a recruitment agent.
This assessment is not straight forward and HMRC’s own Check Employment Status for Tax (CEST) tool has been fraught with errors since inception. A recent ruling by a tribunal judge rejected the ‘employee’ status that the tool had determined for a particular contractor thus paving the way for other contractors to also claim tax and NI back from being unfairly ‘caught’ by these regulations.
HMRC will not be responsible for this liability despite their tool being the cause of the incorrect tax deduction decision. This liability will fall on the agency and hirer. Furthermore, some recruitment agencies are still paying self-employed workers gross amounts thus running the risk of bearing the full tax and NI liability of the contractors.
There are a multitude of tax avoidance schemes that offer to circumvent legislation in various ways. A list of some currently in the spotlight can be found here: https://www.gov.uk/government/collections/tax-avoidance-schemes-currently-in-the-spotlight
ESCG represents a new non-umbrella service provider that offers a unique PAYE solution that works within the legislation and results in a favourable administrative and financial position for both the agency and temporary worker.
ESCG are confident the solutions we represent will navigate the upcoming changes successfully. Please get in touch for more details.