The promised Government consultation is now underway and is scheduled to conclude on 30 September 2015. The expected outcome is for T&S tax relief to be removed for the majority of temporary and contract workers. There is also the possibility that debt liability for the misuse of T&S tax relief schemes may be transferred to the end user clients that engage with recruiters supplying temporary workers.
Over the past 10 years the use of T&S schemes has proliferated across the recruitment industry, with the specific objective of lowering employment costs (and so increasing the recruiter’s margin) by paying part of the temporary worker’s remuneration as “travel & subsistence” expenses and thereby avoiding liability for Employers NI.
Our research suggests that often clients are not aware that a recruiter supplying temporary workers may be using such a scheme, and the temporary workers sometimes have difficulty understanding the arrangements which can involve several intermediaries and complex payslips. We’ve also found many examples where recruiters themselves misunderstand the current rules and regulations.
Who and What is Affected?
The consultation and anticipated legislation is part of a wider initiative by the government to respond to perceived shifts in labour markets.
Currently, temporary workers engaged on an overarching contract (OAC) through a recruitment agency (or umbrella company) are considered to be in a continuous employment situation, even when in reality they may be moving from one end user to another. Under current legislation, a worker in this situation may claim tax relief for their home to work travel costs and subsistence provided they do not remain with any single end user / location for more than 24 months. Similar relief can be claimed by temporary workers that use their own personal limited company as a vehicle to claim income.
Incidentally, the use of OACs has increased dramatically since the passing of the Agency Workers Regulations 2010 (which came into effect in 2011), as the AWR specifically excludes workers engaged via what is often referred to as the Swedish Derogation Option and which requires an OAC to be in place.
The proposal under consultation is to remove T&S tax relief for workers who are supplied through an intermediary and are subject to the supervision and control of the end user client. At this stage it is not intended to include genuinely self-employed individuals who, for example, would fall outside the scope of IR35 legislation.
The objective is to align the tax treatment of temporary workers and employees, to create “a level playing field for all workers and businesses paying tax and national insurance contributions”.
Within the consultation is a proposal to transfer the debt liability for the misuse of T&S relief directly to the end user client. This would be a significant departure from past practice and mean that an end user client could not simply chose a cheaper recruitment agency without exposing themselves to the risk of liability, if the said cheaper supplier offered a non-compliant service.
From what we can see these regulations are on track to arrive early 2016 and the consultation is unlikely to make any significant changes to what we already know. We predict three potential reactions within the market:
- End user clients who engage with compliant recruiters that have never attempted to manipulate T&S tax relief should see no change as a result of this legislation. Kelburn Recruitment are one such fully compliant supplier.
- Recruiters who are aware of the changes and commit to a non T&S tax relief environment will have to alter their internal costs or increase their charges to end user clients to compensate for the additional cost of labour supply that they will incur.
- End user clients who engage with recruiters that continue these schemes (i.e. don’t alter their modus operandi to embrace these changes), will risk taking on board unexpected liabilities for their suppliers non-compliance.
It is unclear to what extent these changes will impact on the umbrella company industry. To date they have put a brave face on the whole situation but we anticipate significant consolidation or closures as a result. The changes will also introduce a need for end user clients to ask additional questions regarding legislative compliance when selecting their future temporary worker supplier.
If you would like to discuss these potential changes in more detail, how they may affect the supply of your own flexible labour force, and potential strategies to remain compliant and minimise any financial impact, then please call our free advice service.