As the dust settles from the Chancellor’s Autumn Statement last week, and we look beyond some of the key impacts to individuals, what impact will some of the announced measures have on the recruitment sector, and those operating within it.
With more recent public scrutiny of pay in the public sector, the tax arrangements of multi-national companies operating in the UK, and individual tax arrangements offshore, it is no surprise that a key focus of the statement was intended to deal with the inadequacies in the current structure of HMRC’s investigation units and the lack of resource dedicated to targeting tax avoidance in the UK and also tax evasion offshore measures.
HMRC will receive additional funding and investment from the government to create a dedicated unit (centre of excellence) which will continue to tackle offshore evasion (both income and inheritance schemes for individuals), to increase resourcing levels to tackle avoidance in the UK, and to enhance the HMRC’s risk assessment capability for large multi-national organisations, and increase HMRC’s transfer pricing specialist resources.
In addition to resourcing, it was also confirmed that the government intended to use the following measures in tackling its perceived issue of tax avoidance and abuse.
The government announced they expect over £5billion in revenue over the next 6 years when their tax evasion settlement agreement with Switzerland comes into force on 1st January 2013. The agreement will allow the UK to recover what they believe is previously unpaid UK tax on money held in Switzerland. In addition to the tax levies for claims for unpaid tax, the agreement also allows for a withholding tax with respect to future investment income and gains arising in Switzerland. It was also announced that the government has signed an agreement with the United States which will allow greater exchange of information and transparency with respect to tax matters.
The government intends to publish its full strategy on tackling tax evasion in Spring 2013.
- Introduction of the General Anti-Abuse Rule
The General Anti-Abuse Rule that was the subject of consultation earlier this year will definitely be introduced. The concern, as already highlighted in earlier blogs, is the lack of clarity as to the extent of these new powers for HMRC. Certainly the outline drafting provided in the prior consultation did not answer concerns regarding the extent of that power.
Draft legislation and guidance will be published in December 2012.
- Consultation on new powers under the Disclosure of Tax Avoidance Schemes (DOTAS) regime to include significant new information disclosure and penalty powers to target promoters of aggressive tax avoidance schemes
- Continuation of HMRC work on review of offshore employment intermediaries used to avoid tax and NI contributions – Update in Budget 2013
- Income Tax Relief for patent royalties are abolished with effect from 5th December 2012, to close a perceived abuse by individuals of this relief
- Closure of tax loopholes from 5th December 2012 focused on avoidance schemes using loan relationships and derivatives
- Increase in resources for HMRC to focus on resolution of avoidance schemes
- Specific focus on the review of partnerships and long standing avoidance schemes (Chancellor during his speech confirmed HMRC would be investigating “abusive use of partnerships”)
- The government will consult on using procurement process to deter tax avoidance and evasion, and on the proposed definition of key concepts, with a view that these new arrangements would come into effect from 1st April 2013
Comment on Anti-Avoidance
From a recruiter’s perspective, none of the above general anti-avoidance measures should be surprising given some of the high profile cases of offshore tax avoidance amongst high earning individuals, and bearing in mind the focus on large multi-nationals, their structuring of their global business operations and impact on their operations in the UK.
What perhaps is of more interest is the upcoming focus on partnerships and their use. All too often the focus is on IR35 and limited company contractors, so it will be interesting to understand what the review will encompass and whether management companies who operate partnership structures for their clients will come into focus.
As always recruiters should always regularly review their existing strategy with respect to umbrella companies and other management companies who provide engagement models for contracting staff. The recruitment industry as a whole is already very conscious of the need to ensure that they are not involved or in a supply chain that engages and supplies contracts via an offshore scheme, but recruiters don’t always necessary closely scrutinise organisations who are in the UK and who perhaps provide alternative models outside of “umbrella employee” models.
Often the option of having a preferred supplier list is overlooked by recruiters, usually out of concerns regarding MSC legislation implications, but the perceived risk associated with having a preferred supplier list is misconceived and having an established and vetted list of umbrella organisations available to contractors will give a recruiter more comfort than simply closing their eyes and hoping for the best.
Reducing the burden of Red Tape
From January 2013, the government will introduce a 1 in and 2 out rule with respect to new regulations and they are planning a second phase for their Red Tape Challenge in Spring 2013. As seasoned sceptics, we shall have to wait and see whether the government can stick to their commitment in this regard! The key highlight for recruiters is the government retraction of introducing a taxation of controlling persons, which was always considered a knee jerk reaction to the public pay select committees reviews earlier this year.
Other updates are intended to be a positive step forward, although there is no further clarity with respect to the government’s prized “employee owner” scheme except that the government will proceed to implement it in any event.
Carbon Reduction Commitment (CRC) Energy Efficiency Scheme
There is a commitment to simply the CRC scheme from 2013 and the government has already announced on the 10th December 2012 further details in its response to the consultation on simplification. The Government intends to introduce legislation before Parliament which shall come into force from 1st June 2013, although this reflects only part of the simplification proposals, the majority of which will be introduced from 1st April 2014.
New Employee Share Ownership
The government is proceeding with its introduction of legislation for new employee shareholder status, which gives employers flexibility in the choice of terms they offer to their employees. Whilst the new legislation is yet to be consulted on, the basics are to allow employers to offer shares in the employing company in return for a waiver of certain employment rights. The first £50,000 of any shares issued under his scheme will be exempt from Capital Gains Tax, and there plans to incentivise the scheme further by creating income tax and NI breaks on the first £2,000 of shares issued to employees.
What is interesting about this proposal is the fact that the consultation only sought views on how to implement the new employee shareholder status, not on the merits of whether to introduce such a scheme in the first place. As the government intends to proceed with the scheme, the proposals remain unchanged from the original consultation. The greatest concern with respect to this proposal was the requirement give up certain employment rights (e.g. unfair dismissal) in lieu of receiving the employee shares. There is concern that these proposals could be manipulated at the expense of the employee creating a nightmare with respect to misunderstandings as to employee status and an increase in cases on discrimination and unfair dismissal. Feedback from responses from business owners to the consultation were in the main negative and only 3% of those who responded confirmed they would consider introducing the scheme. The issue was that most felt that any benefit to the employee was outweighed by the administrative cost to the employer having to operate the scheme. The government intends to resolve any issues through guidance.
Taxation of Controlling Persons
The government has decided not to proceed with the proposal to tax controlling persons at source. This is a welcome relief given the potential headache and impact of defining controlling person and the impact on the recruitment sector in the administration of high earning interims within the public and private sector. The government’s response is that its new approach to policing IR35 along with its measures introduced for the public sector earlier this year are sufficient.
This area will be continued to be monitored by the government.
Transfer of Undertakings (protection of employment) Regulations (TUPE)
A welcomed consultation will shortly be launched on the current TUPE Regulations with a view to reducing unnecessary burden on employers.
Potential Growth Areas for Recruitment
The Government announced their commitment to a £5.5billion package of support and investment into new roads, housing and local infrastructure, science infrastructure, and schools and colleges. Certainly recruiters in the industry sectors of science (including life sciences) construction, and education should see some further opportunities for growth over the coming years. Here are some of the highlights on investment commitments and sector benefits (both confirmatory and new introductions), which is hoped will bring with it job creation in the sectors invested in.
Science and Innovation
- £200 million for UK Research Partnership Infrastructure Fund (£100million of public funding)
- Fund will secure £1billion+ for enhancement of university research facilities and partnerships between universities and private sector
- £120million to the UK Space Agency – for high value scientific and industrial programmes to benefit the UK
- Expected revenue from UK space industry from investment = £1billion per annum
- £600million investment into Research Council Infrastructure and facilities for applied research and development (R&D)
- To Publish Life Sciences strategy document setting out next steps in support for UK Life Sciences sector
- £120million for Advanced Manufacturing Supply Chain Initiative (supporting R&D, training and investment to help UK supply chains improve standards and to encourage suppliers to locate in the UK)
- £378million for upgrades and expansion of key regional routes and solutions for highly congested road links
- £333million for essential maintenance of national and local road network
- £42million in Sustainable Transport Fund for cycling infrastructure (which includes cycling safety)
- £120million to build new flood defences
- £50million for extension of UK Broadband Fund to cities who have been awarded funding
- £1billion guarantee borrowing to support London’s extension of Northern Line to Battersea
- Confirmation of new tax allowance announced in September 2012 for certain mature oil or gas fields
- Confirmation of new consultation on tax regime for shale gas announced in October 2012
- Confirmation of new allowance for large shallow-water gas fields in the UK continental shelf (which was published for consultation in October 2012)
- Incentives for new builds; £280million for FIrstBuy equity scheme, £300million in Affordable Homes Programme, and £200million fund to support private rented sector homes
- £683million (capital grants and financial transactions) in local infrastructure (to accelerate delivery of large housing sites, and to speed up disposal of surplus sites for new homes)
- £980million investment in schools in England (100 new academies and free schools)
- £270million capital investment for improvements for Further Education Colleges in England
- Public service spending levels will be protected for 2013-14 and 2014-15 spending periods
- Public service spending levels will be protected for 2013-14 and 2014-15 spending periods
Video Games/Animation/Television Industries
- Introduction of corporation tax reliefs from April 2013 (subject to state aids approval)
General Business Highlights
- Corporation tax rate to be reduced to 21% from 1st April 2014; main rate will remain at 23% or financial year from 1st April 2013
- Fuel duty increase cancelled
- Introduction of a simplified tax regime for unincorporated businesses:
- sole traders and partnerships who have receipts up to £77,000 and can continue to use regime until receipts reach £154,000. Calculation of profits will be on cash basis and removal of need to distinguish income and capital
- all unincorporated businesses (not just those who qualify above) will be allowed to deduct certain expenses (such as business mileage) at a fixed rate
- These measures follow the consultation issued on 3 April 2012
- Exemption from empty property rates for first 18 months for all newly built commercial property (completed between 1st October 2013 and 30th September 2016)
- Annual Investment Allowance for investment in plant and machinery will increase from £25,000 to £250,000
- Small Business Rate Relief Scheme – Extended for 12 months from 1st April 2013
- Consultation on providing time-limited incentives through company car tax to encourage the purchase and development of low-emission vehicles
- Multiplier for car and van fuel benefit charges will rise to £21,100 from April 2013
- Review by Office of Tax Simplication (OTS) to undertake a review of how current taxation of employee benefits, expenses, and termination payments could be simplified, details to be provided by OTS in due course
Personal Tax Highlights
Income Tax – Additional rate of 50% to reduce o 45%
Capital Gains Tax – Annual exemptions to increase by 1%; £11,000 (2014-15) and £11,100 (2015-16)
Income Tax Reliefs – To be capped at higher of £50,000 or 25% of individual’s income. Charity reliefs will not be capped; draft legislation expected early December 2012
ISA – Annual Subscription limit will increases to £11,520 for 2013-14 and a consultation will be conducted on expansion of list of qualifying investments for stocks and shares ISAs to include shares on SME equity markets. No time frame provided.
Personal Allowance – Increase to £9,440 from April 2013