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New tax year issues for the recruitment sector

May 2017

The start of the 2017-18 tax year brought with it a number of tax changes affecting the recruitment sector. From an employment tax perspective, the three most significant changes are:

  • ’Off-payroll working in the public sector’ (otherwise known as public sector IR35) 
  • The introduction of the Apprenticeship Levy
  • Changes to employee expenses and benefits

Following the surprise announcement of a general election in June, many of the previously announced measures did not make it into the 2017 Finance Act. Interestingly, the public sector IR35 changes did make it into the Finance Act, though many of the employee benefits measures did not. With Parliament now dissolved before the general election, there is a possibility that some changes will never be officially enacted. However, recruiters must continue to plan on the basis that they will be enacted in the future, (whether in this Parliament or the next). 
In summary, the changes are as follows:

Off-payroll working in the public sector

Workers providing services to the public sector through a limited company will be assessed by the public sector body to determine whether the worker would be deemed to be an employee if it weren’t  for their limited company (in other words whether IR35 applies).

If the public sector body decides that IR35 applies, where workers are provided via an agency, then that agency will be treated as the employer and must operate a payroll. The agency will be responsible for the calculation, reporting and paying of PAYE, National Insurance contributions (NICs) and the Apprenticeship Levy to HM Revenue & Customs. This marks a significant change from the current responsibility for IR35 and could also potentially be extended to private sector placements.

The Apprenticeship Levy

Employers, including those deemed to be employers under the public sector IR35 changes, will be liable to pay a 0.5% levy on all salary payments liable to employer’s NICs to fund apprentices. There is a £15,000 allowance so that only employers with salary costs exceeding £3 million a year will actually pay the levy. Funds paid under the levy will be topped up by the government and can be used to fund qualifying apprentices. While the government has proposed allowing the transfer of 10% of unspent funds by 2018, for many in the recruitment sector not directly employing the majority of the workers on their payroll this levy represents an additional tax cost.

Changes to employee expenses and benefits

The main changes to employee benefits are the ending of tax and employer National Insurance advantages of providing benefits under salary sacrifice, with the exception of pension contributions, childcare vouchers, cycle to work schemes and ultra-low emission cars. Employers currently providing benefits under salary sacrifice may qualify for an extension to the previous tax/National Insurance advantages. However, all but a handful of benefits will face an increased tax charge from April 2018 if provided under salary sacrifice.

More detailed guidance on these changes can be found in our briefing documents, as follows:

We are working with employers and agencies to help them understand the impact of the new changes and how they could potentially be mitigated. In particular, we have developed a  tool which assists with decision making when engaging with contractors working in the public sector and will be happy to discuss this further with interested recruiters. 

For more information regarding any of the issues raised here, please contact your usual Saffery Champness partner, or contact Robert Woodward, Senior Manager – Employment Tax.