Do you have any weak links?
On 6th April 2016, changes to taxation legislation come into force that will have a significant impact on UK-based contractors. The main changes relate to tax relief on home-to-work travel and subsistence expenses, and to dividends. Please contact us at ClientTS@optamor.com to receive more information about the changes and the likely impact on companies that utilise contractors.
While the impact of the changes in legislation are significant in themselves, in the sense that a significant proportion of the contractor community will experience an increased tax burden, what is perhaps more interesting is the direction in which the Government is taking legislation relating to taxation and the mounting pressure on end clients to gain control and visibility of its recruitment supply chain.
The 2014 Intermediaries Legislation first introduced the concept of ‘supervision, direction or control’ (SDC), and specifically whether anyone has the right to supervise, direct or control a contractor during an assignment. This is now the key ‘test’ in determining whether contractors who operate on a sole trader or other self-employed model (excluding contractors with their own limited companies, for which the IR35 rules still apply) can be paid without deductions for income tax and NI.
The SDC requirement also forms the basis for the changes to tax relief on home-to-work travel and subsistence expenses, and what is interesting about SDC is that it requires examination of contractors’ individual assignments and a decision on a case-by-case basis whether it applies. It also brings end clients into the conversations about supply chain compliance for the first time, because recruitment partners are not always best placed to decide whether SDC (or the right of SDC) applies in practice.
The fact that SDC – which necessarily requires some involvement of end clients - now forms the basis for two different pieces of legislation, is a strong indicator that future legislation will follow a similar pattern. Many companies simply don’t have sufficiently in-depth relationships in place with their recruitment partners to enable those agencies to answer questions around SDC with any confidence, putting the onus on line managers or HR to provide answers to SDC queries, in the knowledge that their answers can have a tangible impact on contractors’ take-home pay.
What some companies may not realise is that they already hold certain liabilities for unpaid tax if they engage with contractors directly (ie without an agency or master vendor acting as an intermediary), and if those contractors use an offshore umbrella or personal service company. For companies that utilise direct contractors, the upcoming changes in April could drive contractors to use non-compliant payment vehicles in order to avoid increased tax costs, putting companies even more at risk.
With all this in mind, it’s going to become increasingly important for companies with an existing contractor population, whether direct or through agencies, to engage with the right workforce solutions partner – subject matter experts who understand the increasingly complex liabilities surrounding contracting and will give you the comfort of a fully vetted, transparent and compliant supply chain. A partner who understands your business well enough to design and implement solutions in line with your changing business needs and the shifting legislative landscape with minimal disruption, allowing you to focus on your core business.
Optamor has all these capabilities, so come and talk to us. Whether it’s a one-off diagnostics exercise on your direct contractors so that you better understand your potential risks and liabilities or a full end-to-end recruitment solution, we can help.