Following last week’s 2016 Budget speech, here at Ginger we thought we would reflect on the potential impact that this would have on both employment agencies and the recruitment sector as a whole. Despite a number of grumbles along the way, the UK is still forecast to grow faster than any other major Western economy, with a very optimistic stance by the government of a million jobs forecast to be created by 2020.
At Ginger, we are certainly pro-SME, especially here in Lancashire where according to the Office for National Statistics there are over 40,000 of them and let’s not forget SMEs account for over 99% of all businesses in the UK! In the budget there was good news for SMEs, with the current 20% rate of corporation tax set to fall to 17% by 2020 and the change in the annual threshold for 100% relief on business rates, with the lower rate set to increase from £6,000 to £12,000 and the higher rate from £18,000 to £51,000. These Business Rates reforms will have the biggest impact, 600,000 businesses will no longer pay business rates (maybe ever!) which the Chancellor claims will reduce the rates burden by £7bn over the next 5 years.
Much to everyone’s surprise, the Chancellor backed the small business landscape. Buried deep in the budget was his extended commitment to funding SMEs through the British Business Bank. This means that a further £1bn of financial support was confirmed, working with regional councils to help invest in local businesses. This has been a great success in the past and will certainly help small businesses to generate the million jobs forecast by 2020.
It seems the Chancellor has now realised how SMEs can play a massive role in the growth of the UK economy to generate and create wealth and jobs.
Moving on to a more complex discussion, IR35 and PSCs continue to provide somewhat of a dilemma for recruitment agencies…
Where the public sector engages a worker off-payroll through their own limited company, the recruitment agency will now become responsible for determining whether the rules on self-employment should apply and will be financially liable for paying the right tax; legislation due to be introduced in April 2017.
Not many, if any, recruitment agencies will want to take on this sort of liability, this could stop many agencies from providing services to the public sector and potentially result in a reduced talent pool for the public sector at a time when they badly need specialist skills. This will also risk the Chancellor having to fund the use of more expensive consultancies to deliver the services.
Despite the negatives from a recruitment agency perspective, there are some benefits as it will create a level playing field for all workers across the public sector, regardless of whether they are engaged via a limited company or paid directly as employees.
It is unlikely the Chancellor will drop this proposal altogether, however once all interested parties start to voice their concerns about this unreasonable proposal and the government realises the impact this will have on the delivery of public services, the chances of this actually being introduced look slim. The government has promised to review IR35 which governs the process, but the lack of understanding and clarity will cause confusion between the self-employed and employers alike.
How this new proposal will work in practice is still in the early stages, however the bigger concern is if successful it will be rolled to the private sector at a later date.
One big disappointment is the Government’s proposed restriction on travel and subsistence expenses for those under “supervision, direction and control” will go ahead as planned. This will come into effect from April 2016, having been announced in the autumn of 2014. Workers employed through intermediaries such as umbrella companies or limited company directors who are working inside IR35, can no longer claim for travel and subsistence costs as expenses and incur tax relief on these costs.
We’ll give you an example…
- Under the new rules, Contractor X is working as an umbrella company contractor
- Their contract is located in Leeds and they travel there daily for work; they will no longer be able to claim the cost of travelling to this location as a business expense
- However, if they need to travel to London for a one off meeting, the rule being it’s not their regular place of work, they will be able to claim this as a business expense
This could put a brake on the economy as the impact would be a reduction of contractors’ “take home pay” unless one of two things change; an increased assignment rate, or minimising the loss through additional benefits. The drop in net pay could make contractors reluctant to travel long distances if they cannot get tax relief on their travel expenses.
Once this comes into effect there is no question we will see fewer workers wanting to travel for assignments which will have a knock on effect. Government infrastructure initiatives such as HS3, Crossrail and the M62 improvements that rely heavily on contractors will suffer along with other infrastructure projects already on the go.
Here are just a few of the many facets of the budget announced last week and the impact that this could potentially have on different aspects of recruitment and staffing. With a specialist Accountancy and Finance Consultant here at Ginger, we strive to be in the best position possible to assist you with your recruitment and staffing needs, regardless of how complex and pride ourselves on the level of expertise and knowledge on recruitment matters.
Duncan Bradley, Accountancy and Finance Consultant