Understanding HMRC’s new tax legislation, and how it applies to you

In the pursuit of fairness, HM Revenue & Customs are constantly reassessing and revising legislation, but unfortunately, ambiguities and loop holes are being exploited with the same pliancy and resolve.

It’s been found that some companies and employment businesses are using employment intermediaries to hide the fact that a number of their contractors are not, in fact, self-employed. This means they can engage workers without respecting employment rights and entitlements such as holiday pay, sick pay and pensions, thereby avoiding having to pay employers National Insurance.

In an attempt to reduce false self-employment, HMRC have set in place new legislation to make tax avoidance very difficult. As well as protecting contractors, HMRC’s legislation will make sure that businesses that follow the rules cannot be undercut by those avoiding their tax obligations.

As of 6^th April 2015, it will be a legal requirement for all UK recruitment firms to submit quarterly reports to HMRC, informing them of the gross payments made to their contractors. The details must include the name, address and National Insurance number for each contractor. This includes all contractors who are either engaged via personal service companies, or via umbrella companies who haven’t been subject to PAYE reductions. Of course, your personal information is protected by the Data Protection Act 1998, so you can be absolutely assured that your information will be held securely. The law requires us to hold onto this information for at least three years.

Click here to read a more detailed account of HMRC’s guidance.If you are yourself a contractor, then this revision to the Income Tax (Earnings and Pensions) Act, otherwise known as ITEPA, directly affects you.

Are you a contractor? Then you need to know this…

If you are a contractor with us, please send your name, address and NI number to ITEPA@rsg-plc.com by Friday 10^th April. If you have any questions, please feel free to call us on 0117 915 0367, and our dedicated legal team will be more than happy to help. You would also be required to provide this information should you work through an umbrella company and are paid PAYE.

If your contract with us ends before the 6^th April then you don’t need to worry about this, but if your contract is extended then this information will be required.

Do you run a personal service company (PSC)?

The only reason you may be required to submit more than just your name, address and NI number would be if you run a personal service company (PSC) which employs more than one worker (this includes sub-contractors), then you will act as an intermediary which will make it your legal responsibility to report directly to HMRC.

Click here to read the full legislation.We will always keep you informed of any and all useful information. Legislative changes often set people on edge, but not to worry! It’s comforting to know that HMRC are keeping their eyes peeled.

Employed or self-employed, that is the question... or is it?

Earlier this month, the Office of Tax Simplification (OTS) published its report into simplifying the ever knotty subject of how to determine whether a worker is employed or self-employed for tax purposes (Office of Tax Simplification – Employment Status report, March 2015). The report itself is somewhat substantial, so only a few highlights have been reproduced, here.

What the OTS did say was that ‘The UK government and tax authorities need to produce clearer guidance, with more real-life examples, to help firms decide whether a worker is employed or self-employed for tax purposes’. Hurrah!

Where are we now?

Self-employment is not currently defined by UK law and different employment status tests are used for tax, employment law and pensions auto-enrolment. Reporting on the complexities of the existing system and making recommendations for improvement, the OTS said that the existing self-employment indicator operated by HM Revenue and Customs was a ‘valuable resource’ but it required significant expansion and reliability improvements.

The OTS recognises there is a problem, has set out the reasons for it, and also established there is a real need to improve the situation acknowledging the drivers for uncertainty and for employment status being a problem are varied.

People are looking for more flexibility in their daily lives and this can come in many guises: to be, or not to be, an employee? Inevitably this leads to the rest of us who have to consider whether someone is self-employed for tax or employment law purposes, and the resultant scratching of heads, conferring with colleagues, researching various points of law, and concluding this is as clear as mud.

Because the dividing line for employment status is blurred rather than clear, it brings a lack of certainty and invites attempts to ‘game the rules’.

So what’s next?

It’s quite obvious that better guidance and a new helpline could assist firms in the short term, but I’m sure most of us are interested in the long term and what recommendations are going to be made for improvements. This isn’t a short term fix; the work place has changed considerably over the last few years and there are no obvious quick and easy improvements that could be made to achieve a useful difference to the employment status situation.

OTS have made numerous recommendations, including:

• Joint review between HMRC, HM Treasury, the Department for Work and Pensions and the Department for Business, Innovation and Skills which looks at the possibility of developing an agreed code of principles on employment status
• Exploring the idea of a set ‘de minimis’ level for payments to an individual who carries out some activities for a business, which would definitely not be an employment
• The Government’s guidance material on employment status covering both tax and employment rights, brought together in some form of ‘employment status portal’
• A ‘safe harbour’ where an employer was open about its arrangements and relied on HMRC advice
• HMRC to set up an employment status helpline where businesses are able to discuss specific queries with an HMRC officer with specialist knowledge of the subject

‘IR35’ is outside the OTS terms of reference for this project but they do acknowledge they have had regular points raised on the subject. They’ve seen the reports of the IR35 Forum and say ‘it would seem pertinent to explore if there is any synergy between the recommendations for IR35 purposes and those of the OTS under this employment status review’.

For those of you who are part of an in house legal/compliance team supplying ‘limited company contractors’, one could assume that since legislation such as ‘IR35’ has been around now for quite some years, this would be one of the many considerations by the OTS as part of their report. Does this sound familiar… "is my, or how do I make my, contract IR35 friendly?"

Freelancing is a way of life for some, as is being an employee to others. What is clear is that the OTS’ report is welcomed and a review of employment status is critical; this needs to remove the complexity of guidance we currently have and consider all options available to take into account our ever changing workforce.

- Karen Ainsworth-Smith, Legal Services

Budget 2015: an IC low down on the days events

Budget 2015 – an IC low down on the day’s events

Yesterday’s budget announcement, which was the final major political event before the election in May, packed little in the way of surprises. Reaction from the recruitment industry has been positive overall.

The Coalition was clearly keen to push the fact that five years of austerity is the reason that the UK is ‘walking tall’ and that Britain is ‘working again’. Indeed, the Treasury has certainly been buoyed by a period of significantly positive outcomes for the economy and growth in general.

Recent figures suggest the economy is set to grow by 2.5% in 2015, which is above predictions and that the national debt as a share of GDP has reduced.

One of the main things that the Recruitment and Employment Confederation (REC) picked up on was the recognition that the significant move toward self-employment in the skilled workforce had in the Chancellor’s speech.

It is understood there are now 4.53 million self-employed workers in the UK and they will now not have to pay class two national insurance contributions in the next parliament. Annual tax returns will also to be abolished, which altogether represents a significant improvement for those who dread the end of every January.

As expected, there will be changes to the income tax allowance with personal tax-free allowance raised to £10,800 in 2016 and £11,000 the year after. The Chancellor also stated that the higher-rate threshold will go above inflation by 2017-18 and there was a commitment to raising this to £50,000. 

Many international companies in the UK were also thrown a sweetener as a cut to 20% in Corporation tax ensures that the UK remains favourable with the global players. However, new measures for tax avoiders are expected to create a £5bn Treasury saving.

For IC regional offices in Manchester and Cardiff there was also some good news as Mr Osbourne announced that Greater Manchester will keep all of its extra revenue from increased business rates as it grows.

And a comprehensive infrastructure and transport investment strategy is in negotiation with a deal that looks set to massively benefit Cardiff. 

Mr Osbourne also addressed the issues around agencies which ‘abuse tax reliefs on travel and subsistence”. APSCo responded to this by defining what kinds of organisations these are – ie: umbrella agencies and PSCs.

Particular highlights of the day though were not actually generated from the House of Commons – we loved The Economist’s (often talked about but never actually done) Budget Bingo http://www.economist.com/britain/budgetbingo?fsrc=scn/tw_ec/bingo_

And also this look back by the Guardian newspaper, which asked ‘What have six budgets done to Osbourne’?  http://www.theguardian.com/politics/2015/mar/18/budgets-george-osborne-how-chancellor-shaped-up-over-years

Now, the question of course remains – will he be in around next year to deliver a seventh?

"You got me at hello”, but then is it all downhill from there?

“I don’t understand it, he was a great recruit... he had all the right skills and experience but now he’s leaving after only three months”, the senior manager told me. Sadly this is an all too common tale that I often hear.

Recruitment, for me, is where the engagement journey really starts. If it’s done well you will recruit motivated and productive people, but if done poorly it can quickly lead to problems and disengagement.

The recruitment process is arguably the time when the candidate is most engaged. They want the job, they have responded positively to the employer brand and what they perceive to be the organisations' values, they are keen to demonstrate their capability and enthusiasm and they are eager, perhaps sometimes too eager, to believe everything they hear or to put the most positive spin on what they are told.

It’s only natural after all; the candidate wants the role and the organisation needs to fill it, often under pressure to do so. The danger lies when both parties fall under the warm glow of the ‘recruitment moon’ when reality is often overlooked, at least for a while.

So, here are my five tips to ensure real engagement starts at the recruitment process. And lasts.

Recruitment is a two way process.

The number of opportunities is increasing and candidates are starting to have more choices. A good recruitment process should allow an opportunity for the employee to gain an open and clear insight into the organisation and the role. You have a great opportunity to engage candidates at this stage through what you say to them, what you show them (I am always amazed with companies who never show candidates around the office during an interview process), who they meet and the overall experience they have while they are with you. I remember once going for an interview for a large Telecoms company; I was left waiting in reception for 45 minutes and when I did eventually get into the interview room, the person interviewing me seemed completely disinterested. They offered me a job. I did not accept it.

So your process needs to be slick, timely and in keeping with your company culture and values. Of course, your process can be too slick; I have a friend who recently applied for a role with a leading Management Consultancy firm. He applied online late on a Friday evening, and at 9.45 am the following Monday he received an automated rejection email. That Monday morning was the first day back after the Christmas break. “I was rejected by a computer,” he said, “there was no human touch. I guess that’s what it will be like working for them. I have had a lucky escape“.

Recruiters and line managers need to understand the fact that changing roles is a huge commitment and is just as important for the candidate to get right as the employer, so answer their questions in a way that you would want for yourself. For example, get every candidate you interview at the final stage to have an informal chat with someone already doing the role.

Ensure that the candidate knows where the business is going and where they’d fit in.

The recruitment process is the perfect opportunity to share goals, to weigh up compatibility and gain buy-in and engagement. Make sure they understand where the business is going, what they’ll be a part of and where they’ll fit in. After all, everyone needs to know how their role serves the bigger picture. Be transparent; there is no point painting a scenario that fails to live up to expectations.

Line managers; be engaging but realistic.

I have a friend who left a commercial organisation and joined a large public sector employer. The interview went along the lines of, “We need people with your background to come in and help us change”. The reality was that, while the line manager wanted change (and many in the organisation didn’t), my friend sat out two miserable, unchanging years. If the opportunity had been presented more realistically he may still have joined and embraced the challenge, but with his eyes wide open and with a far greater level of trust.

Have integrity. Your message must reflect your true values.

Do existing employees act in the way that your values suggest? Would they agree with and recognise your employer brand and recruitment messages as being true to the organisation? If not, you have a problem. Your recruits won’t recognise the organisation they thought they were joining. People won’t feel engaged if there is a mismatch between what they hear and see before they join and the reality of working there on a day to day basis.

Recruit for skills and experience, but don’t forget attitude and personality.

Be obsessive about recruiting the right people for your organisation. Spend time assessing whether candidates have the right attitude and will fit in, and don’t forget that having a diverse team with different qualities and ways of thinking will bring lots of benefits.

In summary, treating candidates with honesty, realism and openness throughout the recruitment stage of the relationship will ensure that the engagement they have developed will remain. This is good for long-term productivity, morale and retention. And it starts with a "Hello".

- Richard Roberts, Employee Engagement & HR Consultant, en:Rich

The labour market circle of life is completing its cycle

The good news

According to Markit’s monthly Report on Jobs, there were 1.86 million unemployed people in the UK at the end of 2014; that’s 97,000 lower than in September 2014 and 486,000 less than for the year before. Though this is a significant number it is a similarly significant drop, greater than anyone expected this soon in UK PLC’s climb out of recession. On top of this, a recovery this strong and sustained should help to encourage ‘consumer confidence’, according to Bernard Brown (Partner & Head of Business Services at KPMG), which will accelerate the rate of recovery even further.

The catch

Unfortunately, we’re paying for it with the accompanying skills shortage which has been the theme of the 2015 labour market so far. The competition between employers for skilled staff is pushing salaries up at a strong pace, and a feeding frenzy has begun for the limited number of skilled candidates currently on the job market. This deficit is greatest in the Engineering and IT sectors ‘where the demand/supply mismatch is particularly prevalent’ (Brown). The reasons for the lack of qualified engineers could have roots in the outdated attitude that somehow apprenticeships are less valuable than a university degree, although this is dissolving as more and more apprenticeships are being offered. Of course it’s also very likely, unfortunately, that this boils down to the poor efforts to encourage girls into STEM subjects at an early age; if we insist on giving our daughters dolls instead of Lego or Scaletric, of course we have only a fraction of the engineers we could have.

The statistics

February gave us the fastest rise in permanent placements in four months, and contract placements increased at their sharpest rate since last September. Compared to other UK regions, the employment rate in the UK was at its highest in the South East (76.5%) and lowest in Wales (69.2%). The highest unemployment rate was in the North East (8.0%) and lowest in the South West (4.5%).

The approach

As video interviews and sourcing candidates via social media becomes more and more common, it’s clear that the hiring process has embraced technology. The report shows that the amount businesses are investing in internet-based recruitment continued to rise in Q3 2014. Although the rate has slowed to its lowest since Q1 2013, it is still climbing; 29% of candidates now use social media as their primary tool for job seeking, and 92% of companies use or plan to use social media for recruiting, so it’s no surprise that the number of internet-based recruiting continues to rise.

The silver lining

Encouragingly, Markit’s latest Household Finance Index (HFI) survey has shown that concerns over job security continued to fade in February, reaching their lowest point since the survey began in February 2009. Coupled with the consumer confidence we are expecting, this could mean that people will be more likely to change jobs, which could in turn cause candidate availability to rise. What’s more, this has corresponded with rising levels of workplace activity as the productivity puzzle begins to be solved.

So the cycle of the labour market continues to turn full circle. This means of course that we will at some point be back at the lowest point on the wheel, but for now let’s make the most of the climb to the top.

RSG Director Nick Walrond reviews APSCo’s manifesto before the General Election

In its recent manifesto, ‘Accessing Professional Talent in a Global Market’, APSCo calls for a number of what I consider to be ‘common sense’ solutions, which could significantly shape the future jobs market.

The professional body has recommended measures including a call for a junior minister to be appointed with remit over flexible employment and engagement within the Department of Business, Innovation and Skills, and the creation of a European policy that defends the UK’s flexible market. Both of these are desperately needed if we are to ensure that the UK is able to thrive with both its internal employment policy as well as when it comes to recruiting overseas.

However the main issue, which I feel is most prevalent for the next Government to consider, is the need for a new regulatory framework that ensures there is a clear and legal distinction between groups of highly-paid, skilled professionals and those who are lower paid and can find themselves in vulnerable positions. This can, as APSCo put it, often be because they are being forced to identify as ‘self-employed by circumstance, or by unscrupulous end-clients, or intermediaries’. APSCo would like to see this distinction reflected in a move away from the ‘one-size-fits-all’ approach which has been a feature of regulation in the staffing industry for the past 14 years.

They suggest that diversity should be recognised and reflected by regulations, and that the Government seeks to understand who is willingly self employed, and who is being coerced or forced into it.

While this has traditionally been seen as a tricky thing to gauge, differentiators for this could include measuring salary levels, skill sets and the amount of control someone has over which work they take and how they deliver it. For example, an individual earning a relatively high salary compared to the national average, is not vulnerable to exploitation.

It’s heartening to see an organisation take the opportunity of the Election offers to address these often complex and thorny issues, and press for action. These comparatively simple steps could make the working lives for everyone better, and in turn benefit the economy and business in general.