03 Jan, 2013

Key Taxation Challenges

03 Jan, 2013

The REC has received an official response from the Treasury on key taxation challenges facing the recruitment industry. In his letter to REC Chief Executive Kevin Green, Treasury Minister David Gauke provides a useful update on issues such as taxation rules for contractors (IR35) and on the effective enforcement surrounding dubious off-shoring arrangements. However, we would have welcomed a clearer steer on travel and subsistence schemes and will be taking this up with government early in the New Year.

Over recent months, the REC has been in regular dialogue with the Treasury and HMRC, calling for more clarity and better enforcement of taxation rules. With regards to offshore intermediaries, the minister confirmed that the government “will be considering both its operational and policy responses to schemes being operated in this area” and will be taking action to stop “contrived and artificial avoidance”.

A major concern for high-end recruiters over this year has been proposed ‘controlling persons’ legislation that would have limited the viability of contractors and interim managers in senior roles. In his letter, David Gauke pointed to the chancellor’s recent confirmation that the government would not now be taking this legislation forward. However, the minister also pointed out that “this is an area the government will keep under review”.

The shelving of the ‘controlling persons’ regulation was an important win but we will remain vigilant. The REC will continue to work with government over the coming year to ensure that current IR35 rules address instances of avoidance without penalising legitimate contractors and interim managers providing crucial skills and expertise to UK plc.

On travel and subsistence schemes, the minister underlined the fact that HMRC has specialist teams in place to investigate their use and that enforcement activities are on-going. This doesn’t tally with what many REC members are seeing on the ground which is why we will continue to drive for clarity, consistency and effective enforcement in this area. We have advocated the establishment of a specific working group on this issue and recently met with senior HMRC officials to discuss possible ways forward. As a follow-up to this meeting, it was agreed that the REC would send practical recommendations to HMRC in January.

Commenting on the minister’s letter and on recent developments. REC chief executive Kevin Green says:

“We have been knocking on the government’s door for a while on a series of difficult but hugely important taxation issues. Our persistence has paid off and we are seeing some positive signs in terms of policy changes and a commitment to effective enforcement. We will remain at the forefront of these issues in 2013 as we strive to deliver much needed clarity and consistency to ensure that businesses in our sector operate on a level playing field”.