Read. Review. Recruit. | Winter 2017/18

Read. Review. Recruit.

Recruitment Newsletter | Winter 2017/18

Recruitment Sector | Budget 2017 Update

Is it Time to Appoint a Finance Director?

Is Your Agency Prepared for the GDPR?

Whilst short on big announcements, the Chancellor’s Autumn Budget did include a fair few small changes. Here are the key things you need to know.

When is the right time to appoint a Finance Director and if you are not ready to make this investment, what should your finance team be doing to help grow the business?

In a recent survey conducted by Invenias it appears that 85% of recruitment agencies are not yet actively planning for the GDPR.

Page 4

Page 6

Page 12

Contents

2

Welcome and Partners

3

Special Feature Recruitment Sector | Budget 2017 Update

4

Is it Time to Appoint a Finance Director?

6

Is Your Employee Benefits Package Competitive?

7

Raffingers Foundation

8

Beware of Fraudulent Emails “From HMRC”

9

Employee Spotlight

9

How to Retain Your Top Employees

10

Making Tax Digital: What is all the Fuss About?

11

Is Your Agency Prepared for the GDPR?

12

Is There any Solution to IR35?

14

Should I be Using Dividend Waivers or Alphabet Shares?

15

www.raffingers.co.uk

Welcome to our WINTER Newsletter 2017 has been a great year for businesses with the number of businesses in the UK growing to 2.67million (as of March 2017 - Office for National Statistics). Yet, there is a fear that the UK labour market may have peaked, as the number of people in work has fallen for the second month running.

The latest ONS statistics, which look at the market for August to October 2017 depict that:

• UK employment total drops by 56,000 • Basic pay growth rises to 2.3% • Unemployment rate sticks at 42-year low • More people have quit the labour force These latest statistics could make 2018 extremely challenging. More people are either not working or looking for a job, and with the number of vacancies continuing to grow (reaching a new high), it is going to be even more challenging for recruitment agencies to source skilled candidates and fill vacancies.

2018 also brings new changes, such as those announced at the Budget 2017 and, of course, the GDPR. To ensure you are prepared for these we bring you a Special Feature on the key announcements made at the Budget 2017 on page 4, and advice on how you can prepare your agency for the GDPR on page 12.

If there are any topics you would like to see discussed in the next edition, or if you would like to submit an article of your own, please get in touch with lauren. aston@raffingers.co.uk.

The Partners at Raffingers

Raffingers Partners Gary Inglis Managing Partner gary.inglis@raffingers.co.uk

Andrew Coney Partner andrew.coney@raffingers.co.uk

Lee Manning Partner lee.manning@raffingers.co.uk

Adam Moody Partner adam.moody@raffingers.co.uk

Suda Ratnam Partner suda.ratnam@raffingers.co.uk

Barry Soraff Partner barry.soraff@raffingers.co.uk

Paul Dell Partner paul.dell@raffingers.co.uk

Roy Butcher Partner roy.butcher@raffingers.co.uk

Neill Staff Partner neill.staff@raffingers.co.uk

Your Business Our Passion

3

Recruitment Sector Budget 2017 Update SPECIAL FEATURE

Last year, the Chancellor delivered the Budget 2017. In what was declared a ‘balanced’ Budget that would lay the foundations for a ‘prosperous and inclusive future’, we bring you the key points those in the recruitment sector need to be aware of.

Off-Payroll Working - IR35 1. Talks of extending off-payroll working rules to the private sector Take note: “The government reformed the off-payroll working rules (known as IR35) for engagements in the public sector in April 2017.

Early indications are that public sector compliance is increasing as a result, and therefore, a possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company.

It is right that the government take account of the needs of businesses and individuals who would implement any change. Therefore, the government will carefully consult on how to tackle non-compliance in the private sector reforms, including through external research already commissioned by the government and due to be published in 2018.”

4

www.raffingers.co.uk

Personal Taxation and Wages 2. Tax-free personal allowance on income tax to rise to £11,850 in April 2018 3. Higher-rate tax threshold to increase to £46,350 4. National Living Wage to rise in April 2018 by 4.4%, from £7.50 per hour to £7.83 The changes to personal allowances and the higher rate threshold are very much in line with what we expected.

Business Tax 5. VAT threshold for small businesses to remain at £85,000 for two years There had been speculation that Mr Hammond might lower the threshold to bring it in line with other European countries. He said, however, “I will consult on whether its design could better incentivise growth and in the meantime, we will maintain it at its current level of £85,000 for the next two years.”

6. £2.3billion allocated for investment in Research and Development (R&D) The measures for R&D affect large companies carrying out qualifying R&D and claiming the R&D Expenditure Credit (RDEC). They also affect some SME companies

By continuing to invest in Britain’s infrastructure, skills and R&D we will ensure the recovery in productivity growth that is the key to delivering our vision of a stronger, fairer, more balanced economy.

- Chancellor of the Exchequer, Philip Hammond

that are required to claim R&D under the Large Company Scheme. The RDEC (also known as the ‘Above the Line’ credit) is a stand-alone credit that is brought into account as a receipt in calculating profits. The current general rate is 11% of qualifying R&D expenditure. This measure increases the rate of the RDEC from 11% to 12%.

7. Removal of Capital Gains Indexation Allowance for companies from 1 January 2018 The changes to indexation will affect any company that disposes of a capital asset which gives rise to a chargeable gain, and any company that holds shares in a share pool. This measure means that when a company makes a capital gain on or after 1 January 2018, the indexation allowance will be calculated up to December 2017.

8. £540million to support the growth of electric cars, including more charging points The chancellor has unveiled extra funds and tax incentives for electric car drivers, including a new £400million charging infrastructure fund, an extra £100million in Plug-In-Car Grant, and £40million for research into charging.

9. Increase to the annual chargeable amounts chargeable under ATED for 2018 to 2019 The new charges will apply to the 2018 to 2019 chargeable period, which begins on 1 April 2018. ATED is a tax payable by any “non-natural person” – in practice

this normally means a limited company – purchasing or owning residential property valued at more than £500,000 (as at 1 April 2012 or acquisition if later).

Stamp Duty and Housing 10. Stamp duty is to be abolished immediately for first-time buyers purchasing properties worth up to £300,000 This measure will help those in London, and other expensive areas, by making the first £300,000 of the cost of a £500,000 purchase exempt from stamp duty for all first-time buyers. The chancellor said that he expected the measure to benefit 95% of all first-time buyers with 80% of first time buyers not paying stamp duty. He also said that the government’s long-term goal is to build 300,000 homes by the mid-2020’s

Tax Revenues 11. The chancellor says the government has “raked in an extra £160billion over seven years” because of HM Revenue & Customs’ (HMRC’s) compliance work since 2010 There have been claims and counter-claims about the amount of money that HMRC has saved or recovered for the exchequer as a result of their compliance work and particularly the efforts being invested to counter tax avoidance and evasion. The way that HMRC’s yield is measured leaves some room for uncertainty as it includes future yield figures as well as cash collected.

For advice on any of the items highlighted, contact: Gary Inglis, Managing Partner 020 8551 7200 | gary.inglis@raffingers.co.uk

Your Business Our Passion

5

Is it Time to Appoint a Finance Director?

BLOG

Blog by Lee Manning, Partner

When is the right time to appoint a Finance Director and if I’m not ready to make this investment, what should my finance team be doing to help grow the business?

A question I am asked many times.

Investing in an FD is a decision that should not be taken lightly. The cost of employing an FD and finding the right person that fits within your business’ culture, can be expensive and time consuming. However, if you get it right then the benefits far outweigh the cost and will have a positive impact on your business.

The most common reason why you would appoint an FD is to improve the company’s credit control and cash flow.

For any business that struggles with cash flow, having someone on the ground, looking at the accounts on a daily basis and putting in place systems to improve the number of days customers pay, will really help put your business in a strong position.

However, this is no longer the prime purpose for an FD. The role has moved on a great deal in recent years and it is now not uncommon to see the FD undertake:

• System reviews. With so many Cloud systems that can automate and speed up accounting processes, it is important that FDs are keeping upto-date with the market and what systems their business can be using to save time and costs • Corporate governance. This is particularly key, especially with The Criminal Finances Act and the GDPR affecting most businesses • Maintaining sensible growth. The FD has the responsibility of ensuring the business is not over trading and running out of cash However, if appointing an FD is a pipe dream at the moment, then you must at least ensure your existing finance team is undertaking the following:

• Identifying which parts of the business are profitable and improving those that are suffering

• Establishing stringent cash management and

internal controls to provide working capital needed to survive or grow • Implementing new or more efficient IT accounting systems, for example Xero, Receipt Bank, TSheets • Finding finance to fund growth organically or through acquisition, flotation or MBO. There is a growing market of non-traditional finance opportunities offering competitive terms compared to the high street banks • Identifying opportunities to reduce tax bills and bank or currency charges (with the help of a good accountant of course!)

• Developing management information systems to understand commercial and financial drivers of your business. This is an area that is ignored by finance teams as they do not normally have the time and expertise to do this properly, however this is the most important part of the finance team’s role. They should be monitoring the following KPI’s as a minimum: 1. Debtor Days – showing how quickly customers pay the company 2. Gross Profit per Fee Earner – this will show how profitable your fee earners are and whether you are overstaffed 3. Staff costs to net fee income % - assessing this ratio instantly tells you how productive your work force is and whether you are overburdened with non-fee earners 4. Asset to debt ratio - this is the ratio of total assets to total debt, so how much of company debt is covered by assets held e.g. customer debtors list, bank account etc.

Ideally if the result is greater than the debt, then the company is in an excellent position.

Enhancing the structure and calibre of the finance department should be a priority for any business that wants to ensure it survives and thrives in the current economic climate.

• Reviewing non-essential costs and ensuring costs are reviewed on a regular basis • Monitoring debts and improving credit control • Managing payment plans to take advantage of trade discounts and to work within the bank facility

6

www.raffingers.co.uk

Lee Manning 020 8418 2662 lee.manning@raffingers.co.uk

For a lot of organisations, the cost of benefits is in excess of 20% of salary.

Is Your Employee Benefits Package Competitive?

All businesses want to ensure that they attract and retain the best candidates, and implement procedures to ensure the greatest level of productivity. One way to do this is to implement a competitive benefit package.

66% of staff said they would be more likely to stay with an employer that offered good benefits, and over a third report that perks at work are the most important consideration before accepting a job. There is a growing trend for organisations to offer quirky benefits in an effort to attract and retain staff. A study of global workers by Sage, however, uncovered what people really want from their employers. The UK findings show the disconnect between the benefits employers provide and what employees want. This failure to listen is costing UK businesses in the form of reduced productivity levels and a disengaged workforce.

A strong, relevant and well-communicated benefits package not only helps employers make sure they get the pick of employees at recruitment, but can also help them retain happy, committed workers. However, it’s important to ensure that your benefits package is relevant to your workforce. Just because it works for Google does not mean it works for you. Only 9% of employees believe company outings are a valuable benefit and 6% said office games, such as ping-pong, were a valued part of their work experience. In fact, in some cases people felt these ‘games’ were doing more harm than good: with over half saying they are distracting and experience decreases in productivity.

Productivity is a major issue for businesses, the research showed that more than half of respondents say they are productive in their role for less than 30 hours per week. Distractions, such as a ping pong table and company outings, could therefore be adding to the productivity issue businesses are facing, rather than

solving it. Crucially, those surveyed stated they wanted their opinions on workforce experiences heard in the workplace, yet many organisations do not proactively consult their employees. Almost half of UK workers have never been asked for their input by their employers, and only 13% are asked on a regular basis.

Developing and managing workforce experiences has the power to drastically improve recruitment, retention and productivity. Business’ HR practices are key here to supporting the implementation of a flexible and voluntary benefit package in line with a more individualised approach to reward. The personalisation and flexibility of such schemes can address the diverse needs of the workforce, and also provide a cost-effective approach to benefits provision.

Not everyone needs the same perks at work. At different times of life, and in different family situations, different things are important. When creating or reviewing a benefits package, employers need to consider the demographic of their workforce and employees need to think about whether the benefits they have are the right ones for them. It is also important for employers to know what other organisations are doing and decide what is right for the candidates that they are targeting.

Paul Burin, VP at Sage People said, “Organisations need to make it a priority to know what motivates and drives their people, and work with them to create positive experiences so that their people are doing their best work.”

Andrew Coney 020 8418 2710 andrew.coney@raffingers.co.uk

Your Business Our Passion

7

After a successful year of fundraising, we have raised over £19,000!

Raffingers Foundation raised over £19,000 in 2017 thanks to Quiz Nights, cake sales and our Charity Ball, which raised over £12,000 on its own. The Foundation also had two great supporters – Roy Butcher, who raised £1,140 through his Tri Event Challenge (London Marathon, a Sky Dive and The Suunto Great Swim), and Chris Keri-Nagy who raised £1,135 completing the NDW50 (50-mile run) and the SDW100 (100-mile run).

Thanks to everyone’s generosity, Raffingers Foundation is able to donate £7,500 each to Pancreatic Cancer Research Fund (PCRF) and Ovarian Cancer Action (OCA). The remaining £4,000 will be kept aside for the Raffingers Foundation Fund, which allows anyone affected by pancreatic or ovarian cancer to apply for funding of up to £500. This funding can be used for private counselling or even family weekends away. To apply contact charity@raffingers.co.uk.

Raffingers Foundation was launched in 2016, in memory of Jason Kew. Jason was a dear husband and friend of Raffingers who sadly lost his life to pancreatic cancer.

The Foundation is also in memory of those members of the team who have lost loved ones to ovarian cancer.

Lee Manning, Partner at Raffingers and Chairman of Raffingers Foundation said, “We cannot believe how much support we have received in our first year and are delighted to be able to donate such a significant amount to two amazing charities.”

8

www.raffingers.co.uk

£19,000 Raised so far

Catherine Taylor, Chief Executive of OCA states: “Ovarian Cancer Action are delighted to partner with Raffingers who have shown such commitment to our cause over the past year. With Raffingers’ support this year and in the coming years, we will be able to continue our fight against this horrible disease so that one day we live in a world without ovarian cancer.”

Maggie Blanks, Founder of PCRF states, “Thanks to everyone at Raffingers who helped to fundraise for us this year. It’s a wonderful way to pay tribute to Jason and we’re extremely grateful for your support. Our sole focus is to find ways of ensuring more people survive pancreatic cancer and this superb sum will help fund more world-class research towards achieving this goal.”

Date for your Diary! Our next Charity Ball will be held on 15 September 2018 at Prince Regent Chigwell. It promises to be a great night. Tickets are £75pp or tables of 10 are available for £700.

To confirm your place, contact charity@raffingers. co.uk.

Beware of Fraudulent Emails “From HMRC” In the last few months many of our clients have been the subject of scam emails, supposedly from HM Revenue & Customs (HMRC) declaring that they are eligible for a tax refund. These phishing emails ask for confidential information, such as a full address, postcode and specific figures. If you have an email and are unsure whether it is from HMRC, then do not open it, and if you already have, then do not click on any of the links or attachments.

Urgent Action Required HMRC will never in an email ask for a reply or the links to be completed immediately or in a short time frame. For example, ‘you only have three days to reply’ or ‘urgent action required.’

Common Greeting

Due to the frequency of these emails and the number of people that are falling victim, it is important that you are vigilant.

An email from HMRC will greet you with the name you provided to them when you signed up. If the email greets you with ‘Dear customer’, then you know that it is fraudulent. HMRC will always start an email with your full name.

How to Tell if an Email is Fraudulent

Attachments

Spelling and Grammar

Be wary of emails that contain attachments. These attachments could contain a virus, which is designed to steal your personal information.

Often fraudulent emails will be full of spelling and grammatical mistakes. If this is the case, then the email is not from HMRC. Asking for Personal Information

If you have received an email from HMRC and are unsure of its authenticity, contact:

HMRC will never email you to:

Neill Staff 020 8418 2671 neill.staff@raffingers.co.uk

1. Notify you of a tax rebate 2. Offer you a repayment 3. Ask you for personal or confidential information, such as your full address, postcode, unique taxpayer code or your bank account details

Employee Spotlight

In this slot we introduce you to a valued member of our team, allowing you to put a face to a name. This quarter we speak to our Cloud Accounting Semi Senior, Mira Ejaz.

the next few years.

Name: Mira Ejaz Email: mira.ejaz@raffingers.co.uk

Interests: Outside of the office, I enjoy being a part time makeup artist, eating good food and partaking in outdoor activities such as hiking, camping and canoeing.

I am an avid camper and can never get enough of the beautiful Idaho scenery.

Career: I began my career as an apprentice in 2012.

From knowing nothing about accountancy, I am now MAAT qualified and have been privileged to be able to gain a great understanding of cloud accounting services for SMEs from various sectors. I wish to further develop my career and have started my ACCA qualification in the hopes of being a fully qualified Chartered Accountant in

Partners Report: Mira has been a great addition to the cloud department. She has taken on her own portfolio of clients with ease and helped clients improve their internal processes from day one. Mira has great knowledge of cloud accounting and has a great attitude to work. Mira is a great asset to our team and we look forward to seeing her excel in the years to come.

Your Business Our Passion

9

How to Retain Your Top Employees The Top Five Incentives

Enterprise Management Incentives (EMI)

Report

An EMI share option scheme provides significant tax advantages for your employees. The scheme allows an employee to buy a set number of shares from the company, at a given price in the future. Employees can enjoy a relief on Income Tax and National Insurances on shares up to the value of £250,000!

EMI

Benefits Package In addition to salary, it is great to offer members of your team perks throughout their employment. This can include discounted healthcare, free eye-checks or all-inclusive gym membership. There are also external companies such as Perkbox that offer big discounts across retailers and restaurants. This is a great way to keep your team motivated.

£

Great Leadership

1

Employees do not just want a “manager” to give instruction, they want a leader who will motivate them and push them in the right direction. Give your employees some autonomy, allow them to perform their role well. Not only does this motivate them to do better, but it also empowers them. It lets them know that they are not just “another employee”, but a truly valuable staff member.

Career Progression Do you have a new vacancy within your company? Instead of hiring externally, first look internally to see who could grow into this new position. This allows your employee to go further in their career. Training and development opportunities are key for keeping employees long-term.

Communication This does not mean sending numerous emails to your team about what tasks urgently need completing! Take some time to have face-to-face meetings on how they are and their workload. Talk to them in the office and allow your team the freedom to voice their concerns.

10

www.raffingers.co.uk

Making Tax Digital: What is all the Fuss About?

From our experience over the last few months, it is clear that agencies are still unaware of Making Tax Digital (MTD) and the enormous changes that are coming over the next two years.

Thankfully, HM Revenue & Customs (HMRC) has watered down its original plans. This means, those businesses already using a cloud based accounting system like Xero, will not be affected by any changes until April 2020, when they will have to submit quarterly accounts plus an annual tax return. It was interesting to hear at a recent event that HMRC will not be interrogating the quarterly information. Instead HMRC will rely on the annual accounts submitted with the tax return as a means to review the accuracy of the tax being declared.

In light of this, you might be wondering why HMRC is asking businesses to submit quarterly information?

Good question. HMRC’s response is that they are helping businesses be aware of their tax liabilities and how the business is performing on a regular basis, rather than annually. This is very commendable, but we are not sure whether smaller agencies are going to appreciate the additional burden of maintaining their records digitally, especially if they are not too confident with IT.

So, how will MTD Affect Your Agency?

Not currently using a cloud based system?

For those businesses who are not using a cloud based system to file VAT returns, you will need to be ready to change sooner rather than later, as from April 2019 (which is only 16 months away) businesses must submit their VAT returns via their bookkeeping system. HMRC will be turning off the ability to file via their gateway. These businesses will need the support of their accountant to make the transition. To help our clients in this process we have implemented a dedicated cloud team who train our clients and help them to choose an option that is within their budget and capabilities. We have already supported clients with bespoke training, showing them the benefits they can get from using a cloud system, such as real time financial information, improving their internal systems by utilising the vast array of cloud based plug ins and, most importantly, improving their cash flow. We are also able to support businesses by offering a complete outsourcing service to enable the owner to do what they are good at, rather than being bogged down with admin duties.

So, what if you are using a desktop based bookkeeping system?

Well, it is not all bad news as suppliers like Sage have confirmed that their latest releases will have the facility to submit the VAT return online, but why would you

Making Tax Digital is a government initiative that sets out a vision for ‘a transformed tax system and the end of the tax return’ by 2020. The aim of the initiative is to make tax administration more effective, more efficient and easier for taxpayers, through the implementation of a fully digital tax system.

From April 2019 (which is only 15 months away) businesses must submit their VAT returns via their bookkeeping system. want to watch TV on a black and white set when you can watch it on a colour, HD TV for less money? It is also going to be very interesting over the next few years as all the banks are opening their APIs under PSD2, which will enable you to make payments directly within Xero without having to duplicate the work in the banking system. It makes sense to review your desktop system now and move to Xero to future proof your business.

This way you can benefit from being able to run your finances remotely, from any device and being at the forefront of the technological revolution.

We are helping our clients get compliant for MTD by sitting with them (at no extra cost) to show them the benefits of moving to the cloud and being in control of their finances. If you want to be ahead of your competitors and be MTD compliant, contact:

Adam Moody 020 8418 2683 adam.moody@raffingers.co.uk

Your Business Our Passion

11

Is Your Agency Prepared for the GDPR?

In a recent survey conducted by Invenias it appears that 85% of recruitment agencies are not yet actively planning for the General Data Protection Regulation (GDPR). The survey also revealed:

30%

1. 30% of agencies have not yet taken steps to prepare for the GDPR 2. 55% have started to think about how they might prepare for the GDPR 3. Only 15% are actively planning for the GDPR

Not yet taken steps to prepare for the GDPR

55%

Started to think about preparing for the GDPR

15%

Actively planning for the GDPR

Like it or not, the GDPR is coming. If you operate in the EU, have clients that operate in the EU or process data of EU citizens you will need to comply with the new regulations by 25 May 2018.

These changes will have a significant impact on recruitment agencies. Therefore, if you are putting off thinking about the GDPR, we really recommend you start now. Agencies that show genuine intent of making changes and making their agency compliant will be a lot better off than those who do not do anything.

Remember, a breach of the new regulations could result in fines of up to 4% of global annual turnover or €20million (whichever is greater).

How to comply with the GDPR? 1. Complete an audit of your data. What data do you currently hold, where do you hold it and why? You also need to assess how regularly you review the data for accuracy, how long you keep it and whether you can easily react to requests from your candidates. For example, individuals will have “the right to be forgotten” and the “right to object”, which will allow them to

12

www.raffingers.co.uk

object from their details being used, shared or held. Will you be able to respond and provide proof to responses such as this? [NOTE: personal data is not just a person’s email address, it also includes things such as IP addresses and location information).

2. Ensure you are only using the medium to contact clients and candidates that you are authorised to use. You are obligated to only contact an individual using the channel they have opted in to.

3. Unsubscribes are not to be contacted under any circumstance. If a candidate has actively asked to unsubscribe, you cannot contact them again, even if it is just to ask if they wish to be

subscribed back to your content.

4. Alert everyone. Make sure that everyone in your agency, especially those who have access to your data are aware of the GDPR. Otherwise you will be held directly responsible if your employees are still emailing or phoning candidates when they should not.

5. You also need to review your relationship with your clients and any suppliers or job boards you use as they will also be affected by the GDPR and it may affect your relationship with them.

6. Reconsent your active users. Using the medium that the individual has consented to, ask candidates if they would like to remain on your database. You can, however, use this as an opportunity to ask if they would like to be kept up to date via other forms of communication.

(Please note, if you do not have evidence that you can contact an individual, be careful about asking them to opt in as this is still seen as a method of processing data, which is illegal if the person has not authorised it).

7. Data Protection Officers (DPOs). You must appoint a DPO if you: • are a public authority • carry out large scale systematic monitoring of individuals (e.g. processing personal data for behavioural advertising) • carry out large scale processing of special categories (e.g. sensitive personal data, such as ethnic origins, religious beliefs etc.) This applies, even if candidates give you this information voluntarily

• If you are not required to appoint a DPO you should document and keep records of everything you do to prepare for the GDPR 8. Safety, encryption and risk. With data protection soon to be stricter, so should your internal processes. You should take extra precaution to ensure that data is safeguarded and make sure regular tests take place. We also recommend you have a breach response plan in place.

9. Establish retention periods. Over the course of time, some users will become inactive or unresponsive. Establish retention periods so you can keep candidate information accurate and your database responsive.

10. Put in place privacy notices. Once you have assessed all of the above, make sure you clearly communicate to your clients and candidates what data you are capturing and why.

We advise that by May 2018 you ensure your agency can demonstrate that you are abiding by the new regulations and can show a process/ plan you have put in place to make your agency compliant.

Suda Ratnam 020 8418 2681 suda.ratnam@raffingers.co.uk

Your Business Our Passion

13

BLOG

Is There any Solution to IR35?

Now that the dust has settled in the public sector after the introduction of the new IR35 legislation, I thought it would be a good time to review and provide an update on the impact IR35 is having on the sector, take a quick look at what the future holds and see if there is any solution to IR35.

To start with, the legislation was to be applied from 6 April 17 and it is only now that some public bodies are assessing their work force and applying the legislation.

This has caused a huge amount of hostility and stress for workers where the public body has only just deemed them to be caught by IR35. This has meant that tax has had to be backdated to April, which has meant, in some instances, workers are not being paid whilst the backdated tax is collected. This cannot be right!

There is no formal right of appeal to HM Revenue & Customs (HMRC) as the worker must convince the public body that they are not caught by the new test.

With the onus and responsibility with the public body they will need some convincing to change the status in favour of the worker.

What is the effect of IR35 and the company being taxed at source, as if it were an employee?

Well to start with, the company is paying tax as an employee but with no employment rights whatsoever.

There is also the added responsibility of running a company and the duties that companies must comply

14

www.raffingers.co.uk

with. Secondly, net income is significantly reduced as national insurance of 11% will now be deducted, which would not have been applied if dividends were being paid.

A survey of more than 1,500 contractors by ContractorCalculator shows that three quarters of public sector departments lost valuable contractors following the changes, leading to delays and cancellations of critical projects costing millions of pounds. The changes have intensified already acute skills shortages in the health sector, and survey respondents reported the catastrophic impact it is having.

Due to the pay caps in place in the NHS, many locum doctors and nurses cannot charge increased rates to compensate for loss of earnings, and few NHS departments are willing to offer outside IR35 contracts.

The effect on morale in this sector is evident.

What is the solution to IR35?

Workers need to renegotiate their contracts to take into account the additional tax or request an employment contract. In the current economic climate both options are going to prove difficult especially as the worker is in a weak negotiating position.

One solution is to file the accounts to HMRC on the basis that the worker believes they are not caught by IR35 and request a refund of the tax that has been deducted at source. This could obviously create its own problems if HMRC open an enquiry and do not repay

Should I be Using Dividend Waivers or Alphabet Shares?

Should you be rewarding yourself and your team with dividend waivers or alphabet shares? The answer, more often than not, is to reward your senior management team with shares to minimise the overall tax exposure, often alphabet shares.

Alphabet shares are an efficient way to reward director/ shareholders rather than having dividend waivers.

Dividend waivers are more likely to be questioned by HM Revenue & Customs (HMRC) as you will need to obtain consent from each shareholder every time a dividend is waived.

In respect of both dividend waivers and alphabet shares you also need to be aware of the Settlement Legislation, which is in place to expose and punish those that divert income from a higher tax payer to a lower tax payer using either of these methods, thus obtaining a tax advantage.

Any variety in voting rights between the shareholders will most probably result in HMRC applying the Settlements Legislation. the refund until they are satisfied that the company is applying the correct status to the worker.

It is going to be very interesting to see how long the government will continue to have a two-tiered tax system and financially penalise those working in the public sector and give a tax advantage to those in the private sector. Only one of two things can happen, either they repeal the existing legislation after many years of getting it to this stage or bring the private sector in line with the public sector. I know where I would be placing my bets, especially after the Budget 2017 (see page 4).

I will not even get into the effect of applying this new legislation to the private sector, but it would not surprise me if it is done sooner rather than later with the whole Brexit ‘thing’ that is going on.

So, what is my professional advice to those working in the private sector via their personal service company?

Be prepared for the worst, maybe negotiate an employment contract whilst you are in a strong position and look to dissolve your company and extract any funds from the company and pay only 10% tax.

Gary Inglis 020 8551 7200 gary.inglis@raffingers.co.uk

You should also be aware that:

• Any new shares made under the alphabet scheme must be an outright gift and have exactly the same rights as the original ordinary shares.

Restrictions cannot apply (such as being non-voting, carrying lesser rights to capital, or promise to return shares on demand). You must not make the shares redeemable preference shares.

• If you decide to gift shares to spouses, it is recommended you show that they have an active interest in the running of the company, such as becoming a director, the company’s secretary or even an administrator.

• Only pay dividends into a bank account that holds the recipient’s name (such as joint accounts) to ensure you do not attract unwanted HMRC attention.

• Remember that in order to claim Entrepreneur’s Relief, should you decide to sell the company, a 5% share is required.

• Pay some dividends to each type of share, to minimise the risk of HMRC claiming that dividends should not be paid, unless one class of share was not allocated any dividend.

I hope this clarifies the situation for you and if anyone has any questions please do not hesitate to contact our Partner Barry Soraff at barry. soraff@raffingers.co.uk.

Your Business Our Passion

15

Raffingers LLP Head Office 19-20 Bourne Court, Southend Road, Woodford Green, Essex, IG8 8HD Tel: 020 8551 7200 Fax: 020 8551 0912 Email: info@raffingers.co.uk London Office 1 Primrose Street, London, EC2A 2EX www.raffingers.co.uk

facebook.com/Raffingers

@RaffRecruitment

linkedin.com/company/raffingers