Earn smarter, live better. Whitepaper for forest clients: How to respond to legislation changes in April 2016

Transcription

1 Earn smarter, live better. Whitepaper for forest clients: How to respond to legislation changes in April 2016

2 Travel and subsistence FACTS Travel and subsistence expense claims are being restricted for temporary workers working through an intermediary. The new rules will apply from April 6th, HMRC will be using SDC supervision, direction, or control (or the right of) to determine who can claim home to site travel, and who can t. If you re outside SDC, you can continue to claim your home to site travel and subsistence. If you re under SDC, only site to site travel can be claimed. This, as well as changes to salary sacrifice rules set the scene for the solutions. THE SOLUTIONS FOREST FULL EMPLOYED Business process outsourcing for UK SMBs (see: Candidates become full PAYE employees of forest Mileage (from site to site only) can be claimed, with tax relief still given at source (as it happens now, both on NICs and PAYE) All other expenses will no longer be given tax relief at source Instead: Employees complete a tax rebate application at the end of the financial year direct with HMRC If annual expenses are less than 2,500, complete form P87 If annual expenses are 2,500 or more, complete a self-assessment Tax relief is only available on PAYE, not NICs Forest will store the expense claims on our secure portal and assist with the end of year tax rebate SDC LIMITED COMPANY Inside IR35 Under SDC Candidate becomes Director/ Shareholder of their own limited company forest acts as accountant All income is paid as salary Own company bank account 5% of gross income will be used as an approved expense allowance FRV benefit (flat rate VAT) CONTRACTOR LIMITED COMPANY Outside IR35 Outside SDC Candidate becomes Director/ Shareholder of their own limited company forest acts as accountant Own company bank account Small salary, large dividends Can claim expenses including T&S FRV benefit (flat rate VAT)

3 National living wage FACTS The national living wage (NLW) is being introduced from April 1, If you re 25 or over, and not in the first year of an apprenticeship, you ll be legally entitled to at least 7.20 per hour. NLW will be viewed and policed similarly to the NMW (national minimum wage) it s compulsory by law, not an option is the base pay rate, and recruiters need to add ERNI, holiday, and margin on top of this to ensure pay rates comply. THE SOLUTIONS Option 1 Pay everyone a catch all rate, above the living wage as a minimum. Simplest, least risky but most expensive Option 2 Treat the living wage as another bracket on top of the existing minimum wage age-related brackets. Segment your workforce and have different minimum pay rates for the under 25 s and the over 25 s. Slightly more complex and needs the right processes.

4 Calculations

5 A note from our MD The forest approach is built around sustainability and long-term, trusted partnership with our clients. We engage new regulations head-on, rather than seek circumventions. In an unregulated market, HMRC s direction of travel has been clear for several years - aggressive tax schemes will not be tolerated see the timeline on the last page to understand this direction of travel. Clawing back from recession, and propping up a crumbling NHS the UK government badly needs extra cashflow, and tightening tax rules is a way of finding this. Instead of focusing solely on maximising take home pay, we continue to differentiate our proposition through best practice, great service and sound advice based on the long term view rather than look for loopholes to be exploited. is a prime example of how we help our clients stay compliant, and stay ahead of the curve. Our solutions are carefully crafted with high-level, specialist advisers to bring you risk-free options. We ve listed below the key considerations our clients (and us) need to be aware of coming into the new tax year. On top of the changes to T&S and the living wage. Interpreting all of these (and how they interconnect) is a difficult and expensive business, so we ve invested for you, and along with our advisers, put together our solutions based on complying with all of these issues and more. We understand that our clients place a great deal of trust in us and we respect that position. We look forward to continuing to grow with you, and continuing to repay the trust you place in us, for 2016, and beyond. Jovan Pavlicevic, Managing Director.

6 Legislation update TAAR (TARGETED ANTI-AVOIDANCE RULE) TAAR targets all tax avoidance schemes generating contrived expenses - not just those schemes of which HMRC is already aware. TAAR is intended to deter companies from entering into such schemes. It targets arrangements which create or increase relief for expenses or which seek to create any other tax advantage. GAAR (GENERAL ANTI-ABUSE RULE) GAAR has been introduced to strengthen HM Revenue and Customs (HMRC s) antiavoidance strategy and help HMRC tackle abusive avoidance. The GAAR legislation defines what are, for its purposes, tax arrangements that are abusive. These are schemes that are set up with no other purpose than to avoid tax. SALARY SACRIFICE The finance act 2015 introduced changes to the way tax relief could be applied at source. If under SDC, tax relief at source is effectively removed, apart from some concessions around mileage, and site to site travel. DIVIDEND TAX From April 2016, the 10% tax credit on dividends will be abolished, and a 5,000 tax-free dividend allowance will be introduced. Dividends above this level will be taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate). SUPERVISION, DIRECTION AND CONTROL HMRC have introduced SDC (or the right of) as a means of testing whether or not certain expenses can be claimed, and if so, how. DEBT TRANSFER This allows debt to be transferred. In the case of MSC, it can be transferred from the PSC to the provider, and in extreme cases (where the agency is found to play a part in encouraging the scheme) to the agency. In relation to the onshore / offshore intermediaries acts, the debt can be transferred all the way to the end client. DIRECTOR S LIABILITIES To tie all of these as well as historical rules together, and enforce the rules rigorously, HMRC have strengthened powers of debt transfer. Previously, provisions have allowed for debt transfer up the supply chain, but always at the corporate level. This provision makes the umbrella director personally liable for company debt.

7 HMRC s direction of travel 2000 IR35 introduced to tackle disguised employment 2006 Managed service companies legislation introduced to tackle composite companies and associated tax avoidance. The first introduction of debt transfer provisions BN66 targets tax avoidance via offshore trusts also controversially, the introduction of retrospective application of new rules 2011 The National Minimum Wage rules were amended to prevent travel expenses paid under salary sacrifice schemes counting towards the National Minimum Wage AWR introduced to give agency workers equal rights to their perm counterparts 2013 The government announced new rules to tackle the use of offshore intermediaries to avoid employer s NI The government announced rules to deal with onshore intermediaries used to facilitate false self employment General, and targeted anti-avoidance rules (GAAR and TAAR) introduced 2015 The finance act changes the salary sacrifice rules to ensure tax relief is more difficult to obtain at source 2016 The Secretary of State for Business, Innovation and Skills announced an internal review of employment status SDC introduced as the test for determining what expenses can be claimed, by who, and how Travel and subsistence restricted for temporary workers under SDC Director s liabilities introduced to enforce the new rules. Umbrella / intermediary directors made personally liable for company tax debts The emergence of professional employment outsourcing as we ve seen for many years in the USA, Australia and other areas around the globe, where minimising tax is not the primary focus of the supply chain.