Dispatches: Low Pay Britain

Dispatches: Low Pay Britain

Last night Channel 4’s Dispatches investigated the reality of employment for many in modern Britain and how some big name brands utilise complex schemes to save hundreds of pounds on their wage bill. Intouch Accounting’s Managing Director, Paul Gough, watched the programme with interest to see what the future looks like for Low Pay Britain…

30 years ago it was commercially acceptable and almost socially acceptable to mitigate your personal or corporate tax liability based upon what an accountant might call tax planning. Tax planning in this context is a legal means of putting your business or employment affairs in good order in a manner which reduces your tax liability. (Lord Clyde agreed)

“No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer’s pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue”

Lord Clyde, 1929

In the past planning was an acceptable way to arrange your affairs in such a manner that reduced taxes so long as the loser was perceived to be HMRC and if, by a little imagination, you could derive a legal tax advantage, then good for you. Not so any more.

In 2015 Britain if a person or corporation arranges his affairs with the effect of reducing the amount of taxation payable by them, to the detriment of another (worker or supplier) then that is now deemed by HMRC and many other taxpayers as morally corrupt. In times of austerity the public needs the tax.

Dispatches correctly highlighted that the lower paid and vulnerable workers often do not understand the differences between being an agency employee or an Umbrella worker or even the full implications of being self-employed. These workers do need and should get protection from their unions, the GLA and HM Government and it’s politically and morally right to level the playing field making sure we all pay our fair share of taxation in order that we can protect our hospitals and roads and education. But how do you do it?

The programme’s use of the Only Fools and Horses theme tune and in using vocabulary like: corrupt, dodgy, tax avoidance and tax evasion present the case  that arrangements or structures designed to reduce tax payable to the Treasury are no longer acceptable means of keeping more in your pocket. Increasingly such avoiders are being seen as not making a fair and equitable contribution to the nation’s coffers and that is not the British way.

Who are the losers?

The losers are all of us. We work hard and pay our taxes and yet abuse of the low paid is allowed to continue in the largely unregulated temporary employment sector. From the political expediency of Job Centres pushing unsuitable workers into self-employment to end-hirers wanting to share costs reductions with agencies and Umbrellas who are willing to facilitate aggressive tax schemes to reduce the tax take.

The problem is that I and I expect you, do not know where the line is between normal business and personal objectives which use commercial good sense to reduce costs (of which taxation is one) and unlawful “wriggling” to the outside of tax legislation to remove or reduce a tax burden that would in part be used to pay for the things we all expect to have like a functioning NHS.

We understand legal boundaries and the need for protection of the vulnerable, but more and more the arguments being put forward are that it’s not fair, or the playing field is tilted, or the Nation needs more tax so dig deep.

I think abuse and exploitation are legitimate targets for anti-abuse legislation and punishment however care is needed in targeting only the guilty, for there a many organisations providing stimulus and jobs in the UK temporary worker, freelancer and contractor sector that do not deserve to be called guilty, even if the way they operate enables their independent Umbrella workers, the genuinely self-employed and those with personal service companies to utilise tax allowances, incentives and reliefs which only exist because they were created by the Government ! Let’s keep the debate about legality and not about morality.


Do you work for an Umbrella? Read our Travel and Subsistence: It’s robbery blog to find out what HMRC’s current review of T&S claims might mean for you.

 Time to switch to Limited? Contact us to discuss your options.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Travel and subsistence: It’s robbery

The taxman is claiming that Umbrellas are trying to steal from him, but is it the other way round? Travel and subsistence: It’s robbery

HMRC is trying to reach the conclusion that overarching contracts of employment (OAC) are a form of underhand scheme designed by shady Umbrella organisations and other non-compliant employment intermediaries to avoid paying an estimated £400m in Income Tax and National Insurance.

There is no doubt that modern employment models have moved on since the original tax legislation was first drafted, but subsequent tax changes have simply not kept pace with current practice.

Nevertheless, for HMRC to contemplate removal of tax reliefs on previously acceptable expenses, which they introduced, based on an argument that too many people may be benefiting, is a poor argument that will not protect the interests of the vulnerable and lower paid.

Following the issue of a discussion document in December 2014 HMRC invited comment from stakeholders in the temporary labour market, to help the Revenue determine if some end hirers, agencies and Umbrellas, pressurise temporary workers to operate under OACs which in turn allows them to make claims for home to work travel costs that would otherwise be ‘normal commuting’ in order to reduce overall tax payable to HM Treasury.

What is really interesting is the reasons that HMRC have stated as to why they believe contractors should not be entitled to claim travel and subsistence from home to their place of work:

  • “It’s not fair” on other taxpayers who cannot claim, as these other taxpayers are effectively subsidising abuse.
  • “We want to level the playing field” and treat all taxpayers in the same manner
  • “Technically flawed planning schemes” being deliberate abuse especially of the vulnerable workforce.
  • “Because the Treasury wants to collect more tax” – to reduce public borrowing we could always collect more tax.

It seems most likely that if all of the reasons why HMRC want to change the rules are placed in order of importance, then the final one is the biggest driver and therefore highest priority, as they themselves confirmed. The remaining issues are the political justification for a very unpopular and ill-considered project.

Technical highlights

When a worker travels from home to their place of work, the primary assumption is that this is normal commuting and tax relief for the costs of travelling or subsistence is not allowable. However, legislation provides for an exception to this restriction if the travel is to a ‘temporary’ place of employment, rather than a ‘permanent’ one.

This ability (under certain circumstances) for the existence of an OAC to transform what would otherwise be a permanent workplace into a temporary one is what creates the tax relief for expenses.

Other types of workers not engaged under an OAC (permanent, or short term agency contracts), could sit next to an Umbrella worker, may make the same journey from home to the same place of work and are not able to claim tax relief for their travel costs. So there is a moral justification and a case for symmetry of treatment but that only carries weight if one assumes the risks, responsibilities and rights and obligations are also the same for differing types of worker. Which they are not…

HMRC wish to collect £400m more in taxation, remove this inequality, level the playing field and stamp out tax avoidance…and protect the vulnerable worker’s rights and income! (It is not disputed that within this figure some non-compliant business models exist, which rely upon an aggressive interpretation of how the tax laws should be applied. They may fail under anti-avoidance legislation and remain a legitimate target for HMRC.)

The alternative options suggested by HMRC to collect this tax are also open to comment and may even be extended to include personal service companies (PSCs). Today’s main targets seem to be Umbrellas and tax avoidance scheme users; tomorrow’s may well include an attack on the independence of PSCs and small businesses.

If we assume that the estimate of tax loss from HMRC is indeed correct at £400m and HMRC outlaw current tax avoidance models and legislate to make all travelling from home to work under OAC non tax deductible, who will be the losers?

Any increase in the tax take has to come from somewhere. Will contractors and temporary workers in general, but especially at the lower skilled end of the market, be able to afford this additional burden? Will they be able to pass it on to their employer (the Umbrella)? Will the Umbrella be able to pass it on (via the agency) to the end hirer?

Will UK plc be willing to pick up the costs of an extra £400m and in doing so accept this hit to their profits? If they do, the taxable profits of UK plc will fall by the same amount and reduce the tax they pay by approximately £84m…I’m not convinced.

Umbrella v Limited – what’s right for you? Understand your options and contract with confidence. Contact us  to discuss your options.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Osborne rules out NI/income tax merger

Osborne rules out NI/income tax merger

THE ELEPHANT IN the room of tax simplification is trumpeting. The merger of National Insurance and income tax seems to be a possibility, according to the nationals.

But, in fact, chancellor George Osborne all but ruled out a full integration of the systems yesterday. Indeed, his limited scope even caused John Whiting to express his disappointment.

Crucially, Osborne said that he is “not proposing we extend National Insurance to pensioners, or to other forms of income, or that we abolish the contributory principle”. It is this final point that is the most salient. A full merger will have to include an abolition of the contributory principle, otherwise it remains National Insurance.

What Osborne has done is paved the way for an alignment of the systems – the same calculations, the same review period, maybe even a removing all the differences between reliefs applied to the systems. All these would be positive moves and would simplify the systems.

But the fundamental principle behind National Insurance – the contributory principle – will remain. And, as such, the possibility of complete transparency around our rate of tax will not happen.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.