the future of the uk labour market aspire business ... finance bill...the autumn statement • 2015...

The Future of the UK Labour MarketFinance Bill 2016

Aspire Business Partnership LLP

Welcome & Introductions

Julia Kermode, CEO

Freelancer & Contractor Services Association

Agenda

08:30 – 09:00 Breakfast, tea and coffee

09:00 – 09:15 Introductions with Julia Kermode

09:15 – 10:00 Technical briefs from the Aspire team

10:00 – 10:15 Thomas Wynne – Kingsbridge Contractor Insurance

10:15 – 10:30 Patrick Herrlinger – Cashplus Business

10:30 – 10:45 Nathaniel Alexander – Masterpay Group Ltd

10:45 – 11:30 Alan Nolan

Key note speech “Beyond reproach – meeting the compliance challenge”

11:30 – 11:40 Tea/coffee break

11:40 - close Panel Q & A

The Autumn Statement

• 2015 budget

• Consultation; “Employment Intermediaries and

Tax Relief for Travel and Subsistence”

• Autumn Statement - confirmed that new

legislation would be introduced to remove tax

relief for travel and subsistence for workers paid

via an employment intermediary.

• The draft legislation was published as Clause 9 of

the draft clauses for the Finance Bill 2016

The Finance Bill 2016

What does the draft legislation say?

Income Tax (Earnings and Pensions) Act 2003• Insertion of section 339A

• Insertion of section 688B and

• Insertion of Chapter 3B (Income Tax (Pay As You Earn) Regulations)


New insertion to Chapter 2 of

Part 5 of ITEPA after section 339

= section 339A


Section 339A – Subsection 1

1. Applies where the worker

(a) Personally provides services (which are not excluded services) to another person (the client), and

(b) the services are provided via an employment intermediary

The Finance Bill 2016Subsection 1 - Definition of Employment Intermediary

Guidance:



Assumed that SDC applies unless it is shown otherwise –guidance refers us back to ESM2005



Where a worker is supplied via a company within IR35, Section 339A applies

In this situation you do not need to consider the SDC test

Section 339A does not apply to PSCs outside IR35



What is an engagement?

“engagement” means any such provision of services as is mentioned in subsection (1)(a)


Section 339A – Subsection 5 – Anti-avoidance

When considering if Section 339A applies you must ignore any arrangement which has been put in place for the main reason of avoiding Section 339A


Section 339A – Subsection 6 – transfer of debt

Subsection 7 will apply where any other party (client or a relevant person) provided the Employment Intermediary with false information which caused the error

Section 339A – Subsection 7 – facility to recover unpaid tax from the client or relevant person who provided false information


Section 339A – Subsection 8 – definition of “relevant person”

Section 339A – Subsection 9 – definitions


Income Tax (Earnings and Pensions) Act 2003, Part 11, Chapter 3; PAYE: Special types of payer or payee

Insertion of new section 688B – Travel expenses of workers providing services through intermediaries: recovery of unpaid tax

This defines the fact that unpaid tax arising via operation of Section 339A can be recovered from the director or officer of a company


Income Tax (Pay As You Earn) Regulations 2003, Part 4

Insertion of Chapter 3B: “relevant PAYE debt” and “relevant date”

• Liability of directors for PAYE debt

• Facility to issue personal liability notice – can be served on any director

• Fraudulent intent or negligent conduct

• Failure to act upon information provided by another party

Who is affected by the changes?

Who is caught by the changes?• Personal service

• Subject to control

• Via an intermediary

- Currently being paid tax relief in respect of travel expenses

Who is affected by the changes?

• Personal service

What expenses are affected by the changes?

Section 338 and 339 -

Expense items that come within the description of travel and subsistence?

• Mileage

• Other travel

• Accommodation• Personal incidental overnight expenses

• Subsistence

What claims are outside the scope of the changes?

• Claims for expenses outside s338 and 339

• No SDC

• S337 claims – travel in the performance of duties (Tyco Case)

• Continued entitlement under s339 – further assignments within the engagement

“engagement” means any such provision of service as is mentioned in subsection (1)(a)

• PSCs outside IR35

• Situations where there is no employment intermediary (total service)

NO SDC

• Supervision, direction and control will be assumed to exist unless it can be demonstrated and evidenced that it is absent

• Government to issue further guidance

• Communication is key!

• Clear control policy

• Process for gathering information

• Must be reviewed on each change of assignment and process repeated

• Where there is no SDC tax relief on expenses can be paid

Travel in the performance of duties

• Workers who travel in the course of their duties e.g. care workers who visit patients in their own homes, drivers etc

• Tax relief allowable under section 337 ITEPA and so, unaffected by changes

• More provocative use of s337 by including worker’s travel within duties of employment by ‘creating’ a depot

• Spanish case, Federación de Servicios Privados del sindicato Comisiones v Tyco Integrated Fire & Security heard at the European Court of Justice (‘ECJ’) on 10th September 2015 confirmed that time spent travelling to and from first and last appointment for peripatetic workers does constitute working time

• Care would need to be taken with regard to contractual obligation and pay

Continued entitlement under s339

• HMRC concede that entitlement to tax relief will still exist where a temporary workplace exists within the engagement.

• Engagement will apply to one client

• Ambiguity about who is the client

• Need for multiple client sites

ITEPA Section 339 3(a) Temporary workplace Tax relief payable on

expenses

PSCs Outside IR35

• HMRC have not taken any action against PSCs outside IR35 (yet!)

• Employed expenses remain payable

No Employment Intermediary

• Employment intermediary defined as;

• If no supply of labour there is no employment intermediary

• Total service contracts

Other Solutions

• Where there is no scope to continue to pay expenses the supply chain is likely to look to other models which use other methods to cut cost

• Whether using expense or other models there must always be commercial rationale for the business model

• Payment solutions which are implemented purely to circumvent the law will be caught by the avoidance legislation

Next Steps

• Communicate with your clients and suppliers

• Everyone needs to work together

• What is the detail of the worker assignments?

• What will the impacts be?

• What can you do to mitigate those impacts?

HMRC ‘SDC’ Guidance vs Case Law

• New supervision, direction and control ‘SDC’ guidance

• Oziegbe v HMRC

• The First-tier Tribunal accepted the security guards were not subject to control

even though they received initial instruction from the End Client

• In HMRC’s example, Rob the security officer, is subject to control

• The Judge in the Oziegbe case made an important point which undermines the

HMRC guidance;

“the most obvious situation in which the control requirement will not be satisfied is where the

particular service being rendered is one that is extraneous to the basic activity of the client,

such that is entirely natural that the client will have no control or right of control in which the

services are provided”

What else was in the draft Finance Bill 2016?

• Clause 2 introduces a new dividend allowance, which will apply tothe first £5,000 of an individual’s dividend income. The allowance willoperate as a 0% tax rate inserted into the Income Tax Act 2007

• The rates of Income Tax on dividends received above the allowancewill be changed to:

• 7.5% for dividends taxed in the basic rate band

• 32.5% for dividends taxed in the higher rate band

• 38.1% for dividends taxed in the additional rate band


• Clause 8 introduces a statutory exemption from income tax for trivialbenefits in kind (‘BiKs’) provided by employers to employees. BiKsthat qualify for the exemption will not incur a charge to Income Taxnor a liability for NICs, and will not need to be reported to HMRC

• Government will gather further evidence on salary sacrificearrangements to inform its approach

• Taking forward the majority of the OTS’ recommendation in relationto the review of employment status


Focus on Tax Avoidance and Evasion

• Changes to the General Anti-Abuse Rule (‘GAAR’). There will be anew penalty of 60% of the counteracted tax which will apply to taxarrangements entered into on or after Royal Assent of this legislation

• Tackle those who persistently enter into tax avoidance schemes thatare defeated by HMRC – special reporting requirement and ‘namingand shaming’

• Widening of the Promoters of Tax Avoidance Schemes (‘POTAS’)rules

• New civil penalties for deliberate enablers of offshore tax evasion

Improving the Operation of CIS

• On 9th December 2015 HMRC published its proposed amendments to existingregulations to implement changes that simplify the Construction Industry Scheme(‘CIS’)

• The Income Tax (Construction Industry Scheme) (Amendment of Schedule 11 tothe Finance Act 2004) Order 2016

• Simplification of the compliance test

• From April 2016, to obtain gross payment status, the following obligations must bemet in the 12 months prior to the date of the application;

1. File monthly returns in respect of the Construction Industry Scheme

2. File an income tax self-assessment return or a corporation tax return

3. Have paid all amounts of PAYE over by the due date

• This amendment takes away the requirement for company Director’s to meet thecompliance test

Improving the Operation of CIS

• Government has also proposed to introduce other changes that make the operationof CIS easier for subcontractors;

1. Reducing the turnover test threshold from £200,000 to £100,000 where there aremultiple partners or directors

2. Introduce mandatory online filing

3. Mandate online verification on a subcontractor’s tax status

• All of the above will come into force from April 2016, apart from the onlineverification of a subcontractor’s tax status which will take effect from April 2017

• Comments on the draft documents should be sent by Friday 22nd January 2016

CITB Levy• Construction Establishment – engaged

wholly or mainly in the construction industry

• Currently the Levy is based on 0.5% of anypayments made to individuals via PAYE (i.e.employees and directors) and 1.5% oflabour-only subcontractors

• Going forward the Levy will be raised onlabour payments made to net CISsubcontractors at a rate of 1.25%, using thefigures reported on employers’ CIS300s.The PAYE rate of 0.5% remains unchanged

• Employers’ first Levy Assessment under thenew arrangements will be received in 2017using figures from the 2016 Levy Returnwhich uses information from April 2015 toApril 2016

ECITB Levy• Qualifying employers who are

wholly or mainly engaged in

engineering construction

activities

• A company could find

themselves paying the CITB

Levy and ECITB Levy – not

forgetting the Apprenticeship

Levy from 2017!

Apprenticeship Levy

• April 2017

• Charged at 0.5% of an employer’spay bill, provided the pay bill is over£3 million a year

• Each employer will have anallowance of £15,000 to offsetagainst the levy

• Draft clauses published early in theNew Year

• CITB Levy called into question

National Living Wage (‘NLW’)

• Mandatory NLW for workers aged 25 and above comes into play from April2016

• Initially it will be set at £7.20 – a rise of 50p above the current NMW rate

• Government’s objective is to have a NLW of over £9 by 2020

Effect on Employers

• For an individual working 40 hours a week, paying the NLW will equate to anextra £20 per week and so £1,040 per year

• Without taking into account additional costs that will arise as a consequence ofhigher taxable pay such as Employers NICs, pension contributions and holidaypay

• Calculate the financial impact that the introduction of the NLW will have onyour business

Holiday Pay

• Employment Appeal Tribunal heard the case of Lock v British Gas on the inclusion of commission in holiday pay calculations

• Appeal against the Employment Tribunal hearing which upheld that employers must take commission payments into account when calculating holiday pay under the Working Time Regulations

• Tuesday 8th and Wednesday 9th December 2015

Energy Saving Opportunity Scheme (‘ESOS’)

• Mailshot to umbrella companies

• Energy assessment and energy saving scheme that any company which meets the definition of a “large undertaking” must participate in;

• It employs 250 or more

• Annual turnover in excess of 50 million euros (£38,937,777) and an annual balance sheet total in excess of 43 million euros (£33,486,489)

• Deadline to submit notification of compliance to the Environment Agency by 5th December 2015

Penalties for non-compliance

• There are penalties which are imposed for

failure to comply with the scheme. These

consist of:

• Failure to comply: a fixed penalty of up to

£5,000

• Failure to maintain records: a fixed penalty

of up to £5,000

• Failure to undertake an energy audit: a

fixed penalty of up to £50,000

• Failure to comply with a compliance notice,

an enforcement notice or a penalty notice:

a fixed penalty of up to £5,000

• False or misleading statement: a fixed

penalty of up to £50,000

9 Miller Court, Tewkesbury, Gloucestershire, GL20 8DN | kingsbridge.co.uk

Kingsbridge, South Devon

MITIGATING YOUR RISK AS A BUSINESSPresented by

THOMAS WYNNE

01242 808 740

WHO ARE WE?

CONTRACTOR INSURANCE BROKER

Provide business insurance to over 21,000 PSCs

Preferred contractor insurance partner to hundreds of contractor

accountants, recruitment companies and professional bodies

RECRUITMENT INDUSTRY INSURANCE BROKER

Act as insurance broker to recruitment businesses and umbrella

companies

Extremely competitive terms – old fashioned approach to service

Managing your business risk -considerations and challenges

Finding the balance between what client wants vs what you

‘reasonably’ accept

Do you have the right insurances?

Do you ask your contractors to get insurance and provide proof?

Do you have fit for purpose client/contractor terms?

Do you review and audit your management companies/PSL?

Do you review your insurance risk and liability clauses with client?

UMBRELLA company CONSIDERATIONS

Important that any non-standard contractors are recognised and

covered by insurers

Ensure contracts are reviewed properly and correct cover arranged

More agencies requiring higher indemnity limits and worldwide

jurisdiction cover

Important to correctly declare number of contractors p/w, annual

payroll of them and which industries they work in

High risk trades need to be declared so they’re rated appropriately

RECRUITER insurances - considerations

Use a specialist!

Description of business and full disclosure of placement data is

imperative in this industry

Ensure cover is industry specific

Vicarious liability if an agency

Limit risk: Ensure responsibility is passed on to contractors for their

own errors & omissions

Just insuring liabilities and PI? – Any need for D&O, DNI, cyber

liability, legal expenses, fraud, office contents, PA?

Contractor insurance – why you should take this seriously

Signing non-standard terms? Accepting more liability?

If it is in the contract with end client or with candidate – it must be

enforced!

Reduce risk profile of your business! Don’t compromise on own

insurance by not passing this down the chain

Issues: Knowing candidate still has cover in place, knowing cover is

adequate, ensuring industry specific terms if necessary

Umbrella wise – ensure the insurance held by umbrella is

appropriate

Why your candidates should consider insurance

Contractual requirement – No cover. Breach of contract.

An IR35 indicator – make a company more credible. Genuine

businesses insure themselves.

Mistakes can happen – protect against the unforeseen

Not as expensive as perceived

Contractor has responsibility to protect their business and the

companies they work with i.e. agency and client

Becoming more commonplace

Cover for previous work

EXAMPLE contractor package

Legal expenses insurance – why?

Draft legislation released on 9 December

Have until 6 April 2016 to arrange SDC policies for umbrella

Worker is denied tax and NIC relief for home to work travel if under

SDC

Travel and subsidence will be claimable unless it is proven that SDC

(or the right of!) does not exist

Intermediaries job to determine if SDC exists

“Employer" (whether umbrella or staffing company) will be liable for

tax and their directors may be personally liable

LEGAL EXPENSES CONSIDERATION

All seen these ‘Insurance backed offerings’

Ensure you are telling client what this is and what it isn’t

It is worth the paper it is written on?

Should be compliance auditing/compliant processes coupled with

insurance…

Considerations when looking at arranging insurance:

51% success rate clause

Is the insured limited (limit of indemnity) right?

Devil is in the detail – look at exclusions!

Are fines and penalties included?

Inner limits

Our solution

Compliance audit and insurance – a policy that will respond

£500K limit of indemnity

Fines/penalties included

No 51% prospect of success clause.

Panel of audit companies which will review SDC policy, working

practises, document review etc. – Aspire will be one of these!

Insurance provided by Abbey Tax – backed by Markel Corp

Suite of other products have been reviewed and are available

Don’t forget the directors!

Directors of Employment Intermediaries may now be personally liable for tax due ‘jointly and

severally’

Second transfer of liability to another party which provided the Intermediary with fraudulent

documents.

Personal Liability Notice may be issued

Kingsbridge provides specialist Directors & Officers Insurance.

Standard Cover protects Individuals of a responsible position against:

Wrongful Acts – including; neglect, error

Breach of Statutory Duty

Costs of Investigation from Governing Bodies.

This includes tax investigations undertaken by HRMC.

Investigation costs

Defence Costs

Fines & Penalties

Recommended limits start at £500,000 and are for any one claim (not aggregated).

Looking forward

Consider D&O

Make the right LEI choice for your business

Review your businesses insurances

Contractor insurance can provide compliant and regulated revenue

stream when dealing with PSCs and help protect your contractors

Risk to intermediary – continued focus on compliance!

Ensure your supply chain, your partners, your service providers etc.

fully understand the market and the current landscape

A compliant supply chain

Clients looking to the recruitment business to ensure compliance

Recruiters looking to service providers for compliant solutions

Umbrella and accountancy providers – FCSA, PRISM, Aspire

Contractor insurance – a process

Specialist group insurance broker

Industry advice – APSCo, TEAM

Aspire2Comply – Aspire Partnership

Disruptive Banking - Barriers to “SME” Banking

InsightTechnology

Delivery

The Power of:

@APS_Fin I @Cashplus I @pherrlinger

Faltering Banking Environment

Legacy Systems

Risk Appetite

Regulatory Constraints


Have you ever tried to open a business bank account?

onepoll Survey

Surveyed 500 SME business owners and managers on our behalf, to gain insights into their experiences with High Street banks, August 2015

NO 60%

How long was the process?(in Days)

10+ 49%


onepoll Survey (continued)

How much do you pay?(Annually)

Has your bank met your credit requirement?

£469 NO 6%


Challenges when servicing Contractors/Freelancers

Speed of setupLack of online application processLimited availability for in-branch interviews (typically 4-8 weeks wait times)Cumbersome lead referral process and lack audit for referralsNew to contracting clients typically leave bank account to the last moment

Numerous potential drop-out pointsBusiness plan & proof documents typically requiredFormality of opening a Ltd Company Business Account can be off-puttingAccessibility can be an issue for poor/no credit history clients

Transactional data integrationsReliance on customers uploading data or approving 3rd party access to statement data

For modern contractor accountants, payroll and recruitment firms offering a service with the least amount of required customer touch points is key – banking element traditionally has not helped.


Direct Relationship with a bank branchOften dependant on personal relationshipsTypically limited scalability

Integrations and transactional data sharing solutionsIncrease direct and in-direct links (via Yodlee or Bankstream)Improvement in customer authorisation process

The rise of challenger Banks & FinTech providersGreater competitionIncreased understanding the contractor/freelancer segmentImproved customer referral processes

Solutions


Providing Business Current Accounts for Freelancers

FCA regulated Fin Tech banking provider Multi Award winningPartnered with over 100 accounting, recruitment & payroll firms50% of our business applicants are contractors/freelancers (1k p/m)

Instant application & decision process Applications processed online or over the phone

(end to end process takes 5 minutes) Account details immediately available after application

(customer able to instantly invoice their client) Multiple referral & setup options available to

accounting, payroll and recruitment partners


Partnering with APS

Dedicated partnership client manager provided Comprehensive daily reporting provided, detailing the

status of referred clients Competitive commercial model (up front commission) Statement transactional data for referred clients

shared free of charge

[email protected]


[email protected]@apsgroup.com

@Cashplus@APS_FIN@pherrlinger

Company: www.apsgroup.com Product: www.mycashplus.co.uk/business


Nathaniel Alexander

Alan Nolan

“Beyond Reproach – Meeting the Compliance Objective’’

Telephone: 0121 445 6178

Twitter: @AspireBusiness

LinkedIn: Aspire Business Partnership

www.aspirepartnership.co.uk

the future of the uk labour market aspire business ... finance bill...the autumn statement • 2015...

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