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Budget: T&S tax relief removed from next month

Wed, 16 Mar 2016
George-Osborne-budget-2011-©HM-Treasury

The government is to push ahead with the removal of tax relief on travel & subsistence (T&S) expenses, according to Treasury documents accompanying today’s Budget. 

The documents confirmed that tax relief will be removed from April 2016 for temporary workers supplied through employment intermediaries.  

The government’s move was met with a mixed response. 

Commenting on the government’s confirmation, Crichton Miller, chairman of driver recruitment business Haul-It Nationwide, said: “I am delighted.”

He continued: “Decent compliant agencies like mine struggled to compete with the hidden margins employed by the majority of agencies via umbrella companies and T&S schemes. Only extreme efficiency has allowed my business to survive over the last 19 years of trading against unfair competition.

“Now, we should have a level playing field and my workers’ wages will remain the same and our charges will not go up.”

But Crawford Temple, chief executive of PRISM, a trade body for service providers and payment intermediaries in the temporary labour market, said he was disappointed the Chancellor had not announced a strategic review of tax legislation affecting contractors. 

"Our members are still unable to invest in the future with any certainty, and the country's growing army of contractors will continue to suffer the worst of both worlds. They are treated as 'employees' by the taxman despite identifying more with the self-employed in the way they choose to work. It is important to remember these are people with no job security, who lack the same access to support, benefits and pensions available to ordinary employees.”

Meanwhile Julia Kermode, CEO of the Freelancer & Contractor Services Association (FCSA), a trade association for umbrella, accountancy and payroll providers, said: "When T&S comes into effect there is no question that we will see a skills shortage, as fewer workers will be willing to travel for assignments.

“There will undoubtedly be a knock-on effect and government policies that are heavily reliant on contractors will be hit. The new plans for HS3, Crossrail, M62 widening, 18-mile trans-Pennine tunnel will suffer along with other current infrastructure projects which rely on contractors.”

Other announcements in the Budget included:

Oil & gas tax cuts

Backdated from 1 January 2016, the Chancellor effectively abolished Petroleum Revenue Tax by permanently reducing the rate from 35% to 0%, and reduced the supplementary charge from 20% to 10%. 

The Chancellor said this was “in recognition of the exceptionally challenging conditions that are currently facing the sector”.

Peter Searle, CEO at Airswift, a global workforce solutions provider for the energy, process and infrastructure industries, commented: “Today’s announcement will go some way to support the North Sea oil & gas industry and reverse some of the cost challenges the government had previously levied. However, there is still a major risk that the industry will continue to lose talent, skills and expertise to other sectors. It remains to be seen if these tax cuts will protect or create jobs for the North Sea.”

Education 

The government plans to remove all schools from local authority control, making them all academies.  

Lynis Bassett, CEO at education recruiter Class People, said the transition to academies will be good news for teacher recruitment agencies.

 “It will attract more schools and teachers to work with agencies, rather than employ teachers directly, as this will be more cost and time-efficient than going through the recruitment process themselves.”

Adam Shulman, managing director of teacher recruiter Simply Education, said the changes would lead to more collaborative procurement of recruitment services by these new academies. Although the rate an agency could charge per teacher might fall, this would be compensated for by the additional volume. “It will become a volume game,” said Shulman.

Referring to plans to increase school hours by an hour a day in up to 25% of schools, Shulman said this would increase pressure on already hard-pressed teachers. However, he didn’t think it would put people off the profession because most go into teaching “because it is a vocation”. 

Personal service companies (PSC) crackdown

As expected, the Chancellor announced that from April 2017, where the public sector engages an off-payroll worker through their own limited company, that body (or the recruiting agency if the public sector body engages through one) will become responsible for determining whether the rules on self-employment should apply, and for paying the right tax.

Abolition of Class 2 National Insurance contributions (NICs) for self-employed

The government will abolish Class 2 NICs for the self-employed from April 2018. The government will publish its response to the recent consultation on benefit entitlement for the self-employed in due course, which will set out details of how the self-employed will access contributory benefits after Class 2 is abolished.

Infrastructure investment

• Green light given for HS3, Crossrail 2, a four-lane M62 and a new road tunnel in the Pennines.

• £700m more for flood defences, funded by a tax increase on insurance premiums. York, Leeds, Calder Valley and Carlisle are set to benefit.

These moves were welcomed by Paul Payne, MD of technical and construction recruiter OneWay. “The announcements made this afternoon are highly encouraging and indicate that the government is set to push for growth by investing in major infrastructure projects which could create thousands of roles across a variety of positions. 

“However, this is tempered optimism as both the construction and rail sectors are currently suffering from significant skills shortages and much more needs to be done to ensure we have adequate numbers of professionals ready and able to operate on these projects.

“Factors like the upcoming apprenticeship levy, which comes into play next year, are steps in the right direction. However, that’s a long-term solution.”

Apprenticeship levy

From April 2017, employers will receive a 10% top-up to their monthly levy contributions in England and this will be available for them to spend on apprenticeship training through their digital account. The government will set out further details on the operating model in April and draft funding rates will be published in June.

Business rates

In his Budget the Chancellor said he would more than double small business rate relief from £6k a year to £15k. The higher rate will increase from £18k to £51k a year. As a result, 600,000 small businesses will no longer pay any business rates at all.

Corporation tax is reduced to 17% by 2020, and from 20% today.

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