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The UK’s financial minister George Osborne presented his autumn statement on Wednesday, outlining the government’s future economic plans. The statement was so extensive that it effectively became a mini-Budget. The update on the UK’s economic performance was roundly disappointing with economic recovery and the accompanying austerity measures pushed back a year to 2018. The overall message the Chancellor tried to convey was boosting growth and business. But what does this mean for the recruitment industry?
The government plans to cut corporation tax from 24% to 21% in April 2014. “The tax cuts for business and workers announced today are welcome moves. A further reduction of corporation tax is fantastic news and will help the UK retain a competitive business regime,” said Kevin Green, chief executive at the Recruitment and Employment Confederation (REC).
Tax avoidance and evasion – the case of the dog that didn’t bark
After some recruiters and umbrella companies have attracted unwanted publicity about so-called tax avoidance, the government has promised to harden its stance.. Prosecutions for tax evasion will go up by 80% and 2,500 more tax inspectors are going after evaders and avoiders. Tax loopholes will be closed with immediate effect and a further £77 million will be invested to fight tax avoidance by corporates and wealthy individuals.
“A more robust HMRC is very welcome. As well as pursuing tax avoidance by big household name companies we’re very glad the government has responded to our calls and explicitly said they will investigate offshore intermediaries operating in our industry,” said Mr Green.
Many had expected that yesterday’s announcement would include new legislation to address the use of offshore intermediaries to avoid tax and national insurance contributions. Instead, we got the promise of a government review which will provide an update in April next year as part of the government’s Budget announcement.
Recently, there has also been much attention over non-compliant travel and subsistence expense schemes involving agency workersAgain, the Government has not announced any major plans to clear up the matter.
“They have not made a commitment to improve their efforts to crack down on the abuse of travel and subsistence schemes and we will continue to argue for greater action. Abuse of these schemes distort the recruitment market and give unscrupulous recruiters an unfair advantage over those who play by the rules,” said Mr Green.
Taxation of controlling persons dropped
But the government has dropped proposals on the taxation of controlling persons which originally suggested that some professional contractors should have income tax and national insurance deducted at source.
“The difficulty stemmed from the Government’s incorrect assumption that a ‘controlling person’ – i.e. someone who has managerial control over a significant proportion of employees and/or control of a significant proportion of the company’s budget must be an employee,” said chief executive of APSCo, Ann Swain.
“We’ve been absolutely clear throughout that professional contractors do pay their taxes, and those that misbehave can be dealt with under existing IR35 legislation.”
“We said at the time that these ill thought out proposals took no account of the professional interim market and that professional contractors were not ‘fat cat’ tax avoiders but skilled professionals working on short term projects for organisations undergoing change management programmes, turnarounds or other business critical issues.
It pays to be in work
The government will also introduce Universal Credit from October 2013, to simplify the benefit system, improve work incentives and ensure “that it always pays to be in work.”
Mr Green said: “Work must pay. Wages for those in work have not kept pace with inflation so it makes sense to limit increases in jobseekers allowance to 1 per cent. But more fundamental changes to the benefits system via the introduction of Universal Credit next year need to ensure that people are encouraged into work and are not penalised for taking on short-term and temporary contracts.”
Looking ahead: growth subdued in 2013
“Growth will be subdued in 2013 and lower than previously expected for the foreseeable future,” said Mark Beatson, CIPD chief economist. “Long-term unemployment may continue to rise for a while and youth unemployment needs to fall so it will be important for the labour market to continue delivering jobs growth. Meanwhile, for those in work, 2013 will be the fourth year where average earnings do not keep pace with inflation.”
John Nurthen, Executive Director of International Development for Staffing Industry Analysts commented: “Staffing companies operating in austerity Britain will have mixed feelings about yesterday’s statement. With 88% of the government’s austerity cuts still to be imposed, the next five years look quite bleak. Nevertheless, GDP next year is forecast to be an improvement over 2012 so, being optimistic, we might expect the operating environment to be a little less worse.”