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Recruitment Sector Faces More New Legislation

Recruitment Sector Faces More New Legislation

HMRC has released their formal consultation document on proposed changes to the application of Travel and Subsistence expenses to temporary workers.

The consultation proposes changes, similar to those implemented across the construction sector in 2014, that will severely limit the expenses that workers can claim.

The basis of the consultation is that where a worker is subject to any right of supervision, direction or control by any party they will be prevented from claiming travel and subsistence expenses as their workplace would become a permanent place of work.

The consultation also places obligations on the end clients and recruitment companies to confirm this position and ensure the correct application of the tax rules. It suggests that where the rules are not applied correctly the shortfall in tax could be passed back up the supply chain, including to the recruitment company and engager.

When similar rules were introduced in construction, to assess whether a worker was ‘self-employed’, we saw a sharp decline in the numbers of self-employed construction workers as many recruitment companies were not prepared to carry the potential tax risks.

This new legislation builds on this and now prevents any worker subject to these rights, including those in construction, from claiming any travel and subsistence expenses.

The proposals cover workers operating through any payment intermediary including their own PSC and, as a result, will have a wide reaching impact across the market.

As PSC’s are included many were asking whether this would make IR35 redundant as the proposed tests are key elements of the assessment of IR35. In answer to this questions HMRC have also issued a discussion paper on the way forward for IR35.

Whilst I do not agree with many of the proposals and will be submitting a response to the documents what is clear is that the sector faces more change.

All of these changes are due to come in to effect from the 6th April 2016 and therefore could very well impact many workers already on contracts.

PSC workers who have considered themselves outside IR35 and paid a low salary with high dividends are likely to feel the hardest impact where they are caught by the rules. Not only will they be prevented from offsetting any of their expenses they will also be forced to pay themselves fully through PAYE. With the removal of the employers NI relief to the single person company this is a further blow to their income.

Even PSC workers outside of these proposed changes and remaining outside IR35 will be impacted through the new dividend tax regime applying from April which will reduce their overall take home pay.

It will be essential in the build up to this that recruiters have clear communications with their clients to assess which workers will be caught by the new rules. Where these discussions are carried out early this will allow clear communications to the workers that will be affected and minimise potential disruption.

What is also clear is that recruiters will need to ensure they work with robustly compliant providers to minimise their risks of tax liabilities.

As if that wasn’t enough there are many other changes on the horizon. We are awaiting the release of a consultation from BIS on Provider Transparency as well as many projects underway through The Office of Tax Simplification that are likely to impact the sector.

The sector is now facing the highest level of change that could be prolonged over a few years and with HMRC’s new favoured approach of passing liabilities back in to the supply chain it is critical that recruiters keep fully up to date with the changes.

Recruiters should be wary of providers who suddenly change their approach in light of the changes and seek out those that have an embedded and robust compliant approach to their business. Don’t be fooled by provider reassurances, opinions and definitely steer clear of indemnities that are likely to be worthless when called upon.

Crawford Temple

Managing Director

Professional Passport

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