Mixed reaction to budget from recruitment industry

The Government promised to increase its investment in infrastructure, a continued crackdown on the use of umbrella or personal service companies, and to increase the personal tax threshold to £11,500 in yesterday’s budget.

The Chancellor George Osborne claimed this was “a budget for working people” and announced that from April 2017, the tax threshold will rise to £11,500 – on target to reach the £12,500 threshold promised in the Conservative manifesto before the party came to power. 

In addition, it was revealed that the Office for Budget Responsibility has predicted that another 1 million jobs will be created this Parliament.

On the use of contractors through personal service companies or umbrella companies, the Government said that public sector organisations would come under higher levels of scrutiny. From April 2017, where they engage an off-payroll worker through their own limited company, that body (or a recruitment agency if used) will become responsible for determining whether or not the rules should apply, and for paying the right tax.

Further announcements included

• The threshold for employees paying the 40% tax rate will be increased, to £45,000
• Self-employed people will no longer have to pay Class 2 National Insurance contributions from 2018
• Termination payments over £30,000 will be subject to employer national insurance contributions (anything under £30,000 is currently given tax-free).
• The introduction of a Lifetime ISA to encourage workers under 40 to save towards their retirement and receive £1 for every £4 they save.
• Plans to extend the school day to 4.30pm and make every primary and secondary school an academy.

Rumours that the Chancellor would scrap salary sacrifice for pension purposes were unfounded, although the government hinted that it was looking at some future changes to other areas of salary sacrifice in the future. 

Chief economist at the IPPR, Catherine Colebrook, said that the new tax breaks would not benefit the lowest paid. She said: “The problem with this policy is that it doesn’t boost the incomes of the lowest-paid workers in the UK and is very expensive. Over 80 per cent of the gains will flow to those in the richest 50 per cent of families.”

There were mixed reactions from recruitment industry professionals to the main announcements.

Lee Biggins, founder and managing director of CV-Library said the budget “instils little hope overall”. 

“The OBR has been forced to cut targets and even these new goals rely on Britain staying in the EU. With the UK currently facing economic uncertainty, and the likelihood of a Brexit increasing, today’s Budget leaves the nation with more questions than answers. Luckily the chancellor did reveal some good news for small businesses, particularly in the North.

“The reforms to business rates will bring some relief to small businesses, especially given the financial burden the National Living Wage is placing on SMEs next month. Levelling the playing field against corporations will allow small businesses to more effectively plan for growth and continued job creation, which is crucial to the UK labour market.”

Andrew Preston, Group MD of temporary labour procurer de Poel, said: “On the back of today’s announcement that Government will help a minimum of 25% of schools to extend their opening hours, it raises the question as to how this proposal is viable.

“When you take into account the already inflated agency labour bill, national teacher shortage, pupil numbers surging and budgets being stretched, schools are now faced with the challenge of making this plan become a reality.”

Chris Bryce, chief executive of the Association of Independent Professionals and the Self Employed (IPSE), said that “the Chancellor’s move to abolish Class 2 NICs is a long overdue and welcome step”. 

Samantha Hurley, head of external affairs at APSCo, warned that the new duty on public sector employers around personal service companies could have a major impact on the flexible labour market – and the recruiters who supply it. 

She commented: “While we support this in principle, HM Treasury has also said in the small print that when recruitment firms are involved, they will be deemed responsible for assessing employment status for tax purposes and consequently liable for the payment of taxes.”

“This is clearly unjust, because determining someone’s tax liability is highly complex. The IR35 tax rule, which governs the tax paid by PSCs, is not a simple test and requires detailed understanding of many aspects of a worker’s relationship with the client, and of a PSC’s day-to-day operations. 

“Recruitment firms simply do not have sight of the reality of the working relationship.  It is, therefore, entirely unreasonable to expect them to make this decision, and be financially liable for it.”