Legal issues for recruitment in 2017

VAT: Shutterstock

In January it is worthwhile to look over the horizon to see what is coming towards us for the rest of the year.

No doubt there will be some surprises along the way but at this stage we know of a number of legislative changes, a major theme of which will be tackling tax avoidance.

  • For a number of years each April has heralded yet another tax change affecting the recruitment sector and 2017 will be no diff erent. On 5 December, HMRC published the draft Chapter 10 of the Income Tax (Earnings and Pensions) Act 2003, together with technical guidance which will bring IR35 changes to the public sector. In brief, public authorities will have to determine whether an engagement is ‘inside’ or ‘outside’ IR35. If inside IR35, then the engager, which could be the public authority itself, or the employment business where there is one, will be required to payroll the contractor, deduct PAYE tax and employee national insurance, and pay employers’ national insurance. We have a number of concerns about the draft legislation, in particular around the provisions requiring the public authority to provide information to the employment business and the transfer of liability provisions. A consultation on the draft legislation is open until 1 February 2017, with final legislation not expected until the end of March.
  • From 6 April 2017 a new VAT flat rate of 16.5% will apply to ‘limited cost’ companies. That includes personal service companies or ‘miniumbrellas’ supplying labour only. This is in response to a signifi cant growth in such companies registering for fl at rate VAT. HMRC expect many companies will deregister for VAT in response to the change.
  • The apprenticeship levy applies from 6 April 2017 to all payrolls over £3m. Clearly this will disproportionately affect recruitment businesses because although they run some of the largest payrolls in the UK they won’t be able to avail of apprenticeship levy funding they pay in because of how apprenticeships are defined. HMRC published revised legislation on 14 December 2016, which is also subject to consultation closing on 3 February 2017. That legislation – the Income Tax (Pay As You Earn) (Amendment) Regulations 2017 – sets out the mechanism for calculating and paying the levy, reporting obligations and reclaiming overpaid levy. HMRC has also published payroll software guidance.
  • The revised Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 were published in December. The Regulations apply to any ‘relevant employer’, namely private/ voluntary sector employers with 250 or more employees on the ‘relevant snapshot date’, which is 5 April in the relevant year. Employment businesses will have to report on the pay of their temporary workers who are engaged on contracts to perform work personally and who they payroll directly. If there is an umbrella or other intermediary in the supply chain they will be the ‘relevant employer’ for reporting purposes. The first report is due on 4 April 2018 reporting on the period 5 April 2017 to 4 April 2018.

All of these measures will require signifi cant investment in payroll software, contractual changes and due diligence/audit processes. REC Legal will update members in detail on all of these developments.

Lewina Farrell, solicitor and head of professional services at the REC.

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