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Recruitment business owners: are you ready? Here’s a glimpse into the future of IR35

Recruitment business owners: are you ready? Here’s a glimpse into the future of IR35

 

In less than eight weeks, the new rules will come into force as part of the IR35 extension into the private sector. By now, you would already be familiar and have prepared your business (and your contractors) of the changes to come.

 

As with changes due to Brexit, GDPR and HMRC, the real question to ask is this: what will the state of recruitment look like? & how will it affect my business strategy for the rest of 2020?

 

Read on to get a glimpse into the future of IR35 and access for yourself the direct (and indirect) financial impact of the market for your business.

 

Reduced pool of contractors

 

When asked what their biggest fear was, a third of UK businesses said losing their contractor workforce. As much as this is feared, it is only a matter of time before this becomes a reality. Here’s why:

 

  • Contractors trade employment rights in exchange for money but IR35 decreases their earning potential (up to a 25% reduction in net income) making contracting jobs less appealing.
  • Recruitment companies potentially applying ‘blanket determinations’ classifying contractors as ‘inside IR35’ to avoid liabilities
  • Similarly, contractors joining Umbrella companies instead of keeping their limited companies or switching to Permanent roles driven by fear and uncertainty.

 

Rising pay rates for Contractors

 

In theory, with a smaller pool of Contract talent, agencies (or organisations) will have to pay an increase to offset NICs.  However, if agencies choose not to offer an increase pay rates, contractors will have to be the ones burdening the cost.

 

Ultimately, this is very much dictated by organisational budgets and begs the question if large organisations care enough to pay the extra.

 

Longer time-to-fill = lower placement rates?

 

Since that now the efforts for collecting and managing tax & NICs are pushed back up the supply chain, agencies have increased responsibilities and administration challenges to tackle.

 

This will have a direct impact placement rates and time to hire, especially so in a couple months time while still in the early stages of reform.  It could take longer for a job to be advertised, sourced and filled by agencies in light of talent shortages, compounded by compliance with IR35 and negotiations with clients.

 

More competition for permanent jobs

 

New IR35 rules are predicted to create more Permanent jobs on the market as risk averse clients may prefer fixed terms contracts and perm roles instead. This means more choice for job seekers in the market but more competition and increased pressure in the market for recruiters to engage job seekers.

 

Some industries like engineering and manufacturing may be less likely affected as these markets are more focused on perm jobs. However, for healthcare, retail and financial services, it is likely that there will be a reduced level of flexibility if hiring limited company contractors.

 

Rise of ‘Statement of Work’ Services

 

A lot of talk has surfaced with Statement of Work (SoW) as the alternative model for staying ‘outside IR35’. Why? It provides clients with more assurance on project price and output.

 

With expected additional costs that businesses are likely to see due to IR35, SoW is a good opportunity for recruitment agencies to offer premium services to their current client base.

 

However, it’s important to understand what an actual SoW is – a truly contracted out service for which IR34 rules do not apply. SoW provides an avenue for additional income but it also means extra responsibilities, surrounding compliance issues, time and admin.

 

This blog was provided by TRN Gold Partner Vincere. To find out more about Vincere then please click here.

What recruiters need to know about IR35 in the run-up to April 2020

If you are a recruiter that engages with contractors, the upcoming changes to IR35 in the private sector present one of the biggest challenges in recent years. Whilst these changes have been looming for several years, following a trial run in the public sector, recruiters must start readying themselves for the new rules coming into effect in April 2020.

The proposed changes require businesses that engage the services of contractors operating through their own limited company to consider the employment status of that contract. This is done by assessing the contract that is in place, as well as the contractor’s working practices, in order to conclude whether the individual is acting as a “disguised employee” and is therefore deemed inside of IR35.

In order to satisfy HMRC guidelines, “reasonable care” must be taken to ensure that the employment status decision is accurate. Once a decision has been made as to whether the individual is inside or outside of IR35, this outcome then needs to be presented to the worker, and any intermediary supplying the worker, prior to 5th April 2020.

You may be reading this and thinking that all the preparation for the legislation change sits with end hirers and not recruitment agencies. And whilst this is correct that the responsibility will sit with them moving forward, there are still steps you can take to educate yourself and most importantly, the contractors you work with.

SO, WHAT CAN YOU AS A RECRUITMENT AGENCY BE DOING TO PREPARE YOURSELF AND YOUR CONTRACTORS?

  1. Understand the ins and out of IR35 – Educate yourself on IR35. Make sure you understand the legislative changes and the effect this will have on contractors post April 2020. The majority of contractors will have only read about the IR35 Legislation change online or heard about it from other contractors, so being able to support and advise them will put you in good stead and help you gain an advantage over your competitors.
  2. Communication – Most contractors are unsure about the steps they need to take for them to be reassessed. Even though this is down to the end hirer to progress, it is good to communicate this to them and reiterate that it’s ok for them to get in touch with their end hirer and ask for further clarity and updates on how this is going. The sooner they have been assessed, the sooner you as a recruiter can advise them how they can operate going forward.
  3. Supportive process – The effect IR35 will have will be different for each contractor, but the actions they take prior to being assessed will be the same. Make sure your agency scopes an IR35 process, explaining how IR35 is going to affect contracts after April 2020 and how contractors should approach IR35 with their hirer. Ensure this process is rolled out to all other recruiters at your agency so the advice you offer is consistent.
  4. Contractor working options – If captured inside IR35, contractors are going to need to understand the working options available to them if they are no longer able to operate via their limited company. You need to make sure your business can explain the other way for them to work / be paid and provide an overview of the service and how this differs from working through a limited company.
  5. Specialist advice – There is a lot to consider when it comes to IR35, which is why partnering with a specialist can be of benefit. Brookson can support with all aspects of IR35, not only as a specialist contract accountant, who offers multiple working options for contractors, but as an SRA regulated law firm and specialist in IR35. Brookson are able to ensure your agency and contractors understand IR35 and get support both prior and post April 2020.

With the above steps in mind, it is critical that recruiters understand IR35 and how they can continue supporting their flexible workforce.

With only a few months left to prepare, speak to the experts for a FREE IR35 education session.

01925 694 521 | agencies@brookson.co.uk | brooksonone.co.uk/recruiters

What does your Recruitment Consultant look like heading in 2020?

With 2020 only a few weeks away, what are some of the skills that recruiters are going to need to have and improve moving into 2020 and beyond to stay ahead of the curve?

 

They’re always open to change.

 Recruitment is no longer a stopgap job or a way to make some quick cash. It’s a professional career that consultants are looking at as a long-term venture.  They take their time to upskill, learn and develop themselves, whether this is through learning new industry-specific skills, improving their sales techniques or becoming better sourcerers using new tech platforms and tools. developing their leadership skills. Recruiters in 2020 shouldn’t be one dimensional, and instead, they should look for progression, learning new skills and being able to provide a stand-out service to their clients and candidates.

 They’re keen to create a personal brand.

 Recruiters in 2020 understand how important branding is and how it can distinguish them from the crowd. They’ll be building their presence on social media platforms, engaging at events, speaking, and offering all the value and insights they can to their wider network. They’ll also understand the importance for their clients of employer branding and propositioning and how they can make their client’s companies more appealing, in turn attracting more talent and making growth easier.

 They’re creators (and consumers) of content.

 Recruiters in 2020 have grown up consuming content, whether it be vlogs, blogs, YouTube tutorial, podcasts or any of the other variations of content. This knowledge means they know the importance of providing REAL value to their audience, whether it be potential clients or candidates. They can create their own content in specific mediums, and understand how to repurpose this content for different platforms, audiences and requirements.

 They’re tech-savvy.

 Whilst 2020 recruiters won’t all be developers, they do have a keen interest in tech, whether that be ai and how it can help by automating much of the recruitment process and in turn free up a lot of their time for the more personal sides of recruitment.  They are using tech to become more agile. Similarly, they are learning how to use new social platforms, learning how to use the algorithms to their advantage and get their content out in front of their ideal clients and candidates.

 They understand the importance of good marketing.

 The marketing and recruitment cycles are very similar and this is something 2020 recruiters will understand. Instead of hitting call times and cold calling every business in their specific niche, they’ll make sure they’re creating creative campaigns that actively engage a higher percentage of candidates and clients as well as using social touchpoints, email marketing and social media campaigns to get the right message out to the right people.

 Here at The Recruitment Network, we are working with recruitment business leaders and their people to grow both their skills and confidence to become true 2020 recruiters, fit for purpose in the evolving landscape we work in.

We are here to bring clarity and opportunity to what is a slightly complex and uncertain time for many. 

We are here to enable you to become the best you can be in 2020 and beyond.

What do IR35 changes mean for recruitment agencies?

The government announced in 2018’s Budget that private sector businesses will become responsible for assessing the employment status of the off-payroll (commonly known as IR35) workers they engage.

From 6 April 2020, medium and large private sector businesses will need to decide whether individuals who work through their own company fall inside or outside of IR35.

Where the worker is inside IR35, the business, agency, or third party paying the worker’s company will need to deduct income tax and employee National Insurance (NI) and pay employer NI.

This article highlights what a recruiter needs to know about existing IR35 legislation and what the proposed changes mean for the private sector.

What is IR35?

The off-payroll working rules – commonly known as IR35 – is designed to combat tax avoidance by workers supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used.

HMRC refers to such workers as ‘disguised employees’ as the worker doesn’t meet HMRC’s definition of self-employment, therefore, the correct tax and NI isn’t paid correctly.

The rules to counter alleged tax avoidance via the use of ‘personal service companies’ became law in 2000, and remain in place today.

Note: ‘worker(s)’ = freelancer / contractor

IR35 and the Public Sector

In April 2017, the responsibility for determining whether a PSC worker is inside or outside of scope of IR35 legislation was shifted to the hiring organisation. This included liability for tax and national insurance contributions.

Public authorities impacted include:

  • Government departments and their executive agencies
  • companies owned or controlled by the public sector
  • schools and universities
  • local authorities
  • NHS

What was the impact?

Released in 2018, HMRC’s Off-Payroll Reform in the Public Sector report found:

  • 58% of central bodies and 70% of sites said that there was no change in the ability to fill contract vacancies post April 6 2017.
  • Most public bodies reported that their ability to fill contract vacancies had not changed.
  • Most central bodies and sites had not found it any more difficult to recruit off payroll contractors with the appropriate skills or knowledge (central bodies: 68%, sites: 76%) or find off-payroll contractors willing to work for them (central bodies: 62%, sites: 67%).
  • 38% of public bodies used HMRC’s CEST / ESS tool as a source of information for determining IR35 status. Of these, 22% said that the tool was either “not very helpful” or “not at all helpful”.
  • 60% of central bodies reported that their staff spend more time on administration since the changes.

Proposed changes to IR35 in the Private Sector, April 2020

The Government’s objective is to increase compliance in the private sector with rules that have been in place since 2000, to make sure that they operate as intended.

The proposed changes to IR35 will impact businesses in the recruitment sector who supply workers operating through intermediaries, such as PSCs, as well as medium and end user clients who use the services of ‘off-payroll’ workers.

Why?

  • To increase compliance with the existing off-payroll working rules in the private sector
  • HMRC estimates that only 10% of people working in this way apply the rules properly
  • The cost of non-compliance in the private sector is growing and is estimated to reach £1.2bn a year by 2022

Who is impacted by the change:

  • Recruitment agencies who supply workers operating through intermediaries, such as PSCs
  • Medium to large businesses who are using the services of ‘off payroll’ workers.
  • The worker

Key areas of the proposed changes

  1. From 6 April, 2020, the responsibility for assessing whether IR35 applies will shift from the individual to the end client. (If the role is determined to be ‘inside’ IR35, whoever the fee payer is will be responsible for deducting the relevant Tax and NI contributions at source, before paying the Limited Company the Net amount.)
  2. The new rules will only apply to ‘medium and large businesses’. The criteria is expected to be similar to the definition in the Companies Act 2006 which stipulates “the qualifying conditions are met by a company in a year in which it satisfies two or more of the following requirements:”
    • Turnover not more than £10.2 million;
    • Balance sheet not more than £5.1 million; and
    • No more than 50 employees

      Note: The Companies Act definition doesn’t apply to unincorporated businesses. HMRC suggests two options – to apply the reform to “unincorporated entities with 50 or more employees and to entities with turnover exceeding £10.2 million” or “to apply the reform only to unincorporated entities that have both 50 or more employees and turnover in excess of £10.2 million.” While it falls on clients to know whether they’re a small organisation, questions have been raised around when workers should be told they’re working for one.
  3. The government has announced that small organisations will be exempt from the changes proposed for April 2020. Meaning that workers engaged in contracts with ‘small businesses’ will remain responsible for determining IR35 and not the client. HMRC confirmed in their March 2019 consultation that this will remain the case even if the worker is hired via a recruitment agency.
  4. For workers whose assignments will fall inside IR35, PAYE and NI contributions will need to be deducted at source from their income by the ‘fee payer’ (agency or end client).
  5. The end client is advised to communicate to the worker the IR35 status of their assignment.
  6. Provided that everyone in the supply chain fulfils their responsibilities, the ‘fee payer’ will carry the liability.

IR35 tax simplified

  • Inside = contractors should be paying employed levels of tax.

If continuing to use a Limited Company, the Fee Payer will have to deduct Tax & NI before paying the Limited Company the Net amount or the contractor will need to use an Umbrella.

If providing services via an Umbrella, the contractor will be setup on PAYE and employed by the umbrella, so therefore these changes won’t apply.

  • Outside = contractors can pay themselves a combination of salary and dividends which can be more tax efficient.

In this scenario, the fee payer can continue to pay the Limited Company the Gross payment as before with no changes to taxation.

Determining IR35 status

IR35 decisions are based on but not limited to:

HMRC has developed the Check Employment Status for Tax (CEST) service to help businesses determine whether the off-payroll working rules apply.

 

‘Inside’ or ‘outside’ IR35 at a glance

IR35 - Inside or Outside at a glance

 

Client responsibility

Clients will have to make the IR35 determination on any flexible worker that they engage from April 2020 or any contracts that are in place before and have an end date beyond 2020.

Reasonable care

Post changes to IR35 in the Public Sector, in April 2017, many public sector bodies applied blanket ‘inside’ decisions. This step was deemed to be unnecessary by HMRC, who quickly introduced ‘reasonable care’.

HMRC defines reasonable care as “doing everything you can to make sure the … documents you send to HMRC are accurate”. It also states that it will take “individual circumstances into account when considering whether you’ve taken reasonable care”.

It’s advisable for clients to have a standardised approach to defining inside or outside IR35.

Umbrella Company Contractors

Anyone supplying services using an Umbrella does not fall into the legislation because they are employed by the Umbrella Company and the relevant Income Tax and NI contributions are paid in the same ways as any traditional employee.

Summary of proposed changes to IR35 in the Private Sector

  • New rules apply to private sector from April 2020
  • End client is responsible for determining IR35 status
  • Small clients are excluded from the new rules
  • End clients have a duty of ‘reasonable care’ when making determination
  • End client to supply a Status Determination Statement citing reasons for decision
  • Client Led Status Disagreement process in place, whereby contractor can challenge status. The client has 45 days to respond
  • If the contractor is inside IR35 then the Fee Payer must deduct Tax and NI payments
  • Debt liabilities can pass back up the supply chain

What recruitment agencies should do in preparation for 2020 proposed changes to IR35 in the private sector

  1. Assess current arrangements for each client, identifying the number of workers supplied who operate via ‘off-payroll’ status – e.g. PSCs.
  2. Determine if the off-payroll rules apply for any contracts that will extend beyond April 2020.
  3. Start talking to your contractors about whether the off-payroll rules apply to their role.
  4. Put processes in place to determine if the off-payroll rules apply to future engagements. These might include who in your organisation should make a determination and how payments will be made to contractors within the off-payroll rules.
  5. Assess arrangements involving complex labour supply chains to identify if your position post April 6 2020 will increase your payment risk.
  6. Identify how many clients are outside the new rules through not meeting the criteria to be classified as a ‘medium and large business’.
  7. Develop a training and communications strategy to ensure your team can explain changes to IR35 to workers who are ‘inside’ or ‘outside’ the legislation.
  8. Assess the direct / indirect financial impact of IR35.
  9. Review internal systems, such as payroll software, process maps, HR and onboarding policies to see if they need to make any changes

What’s next?

A summary of responses will be published later this year by HMRC. The consultation will inform the draft Finance Bill legislation, which is expected to be published in Summer 2019. The reform will come into force from 6 April 2020.

Recommended reading

Specialist advice can be sought from a variety of tax, legislation and employment experts including:

Sonovate are creating a support structure that gives businesses and individuals the security and flexibility they need to thrive. To find out more about Sonovate click here.

10 proven ways to maximise the value of your recruitment business

Running a business offers you many benefits, from controlling your own destiny to realising your financial ambitions.

Throughout your journey, it’s likely you’ll consider your exit plan, visualising what it looks like and when you want to exit.

A common approach* to valuing a business is to multiply the annual profits, known as EBITDA (earnings before interest, tax, depreciation and amortisation) by a fixed multiple in order to reach a price, often referred to as ‘enterprise value’.

  • EBITDA x multiple = enterprise value

In 2018, the average enterprise value / EBITDA multiple increased 17% throughout the year from an average of 9.1x in January to 10.8x at the end of December, according to BDO.

There are several criteria that influence the multiple and are based on the wider considerations buyers go through when purchasing a business.

What qualities do they value in a business? What would influence them to pay more? Why might they pay less and what do they view as vulnerabilities or risks?

By viewing your business from a buyer’s point-of-view, you’ll be able to evaluate business performance across a number of key criteria.

To help you understand what influences a buyers offer price, we’ve listed 10 things you should seek to enhance.

  • Growth

Potential buyers will want to ensure that they’re buying a business that is on an upward trajectory. Analyse your business’s growth in the last financial year. What is your profitability? What’s your topline growth? Is your trading activity trending upwards?

  • Strong management teams

Can you demonstrate that your business has a strong management team? What’s the average tenure? What’s the career path? Do you provide leadership development programmes? Potential buyers will want to see evidence that the team they’re going to work with are performing at a high level and buy into the company. Crucially, they will want to see evidence that the decision making isn’t constrained to the owner – your business will be more sellable if the owner is less involved.

  • Market sector expertise

Moving into new markets requires business process, structure, the right people to lead and increased marketing spend. Potential buyers will seek evidence that the business has a strong level of sector knowledge and capability. Being able to demonstrate sustained market sector expertise (placements, stronger margins, profitability, clients, growth, star performers) can add significant value.

  • Top billers

Potential buyers will want to see evidence of team billing history, average tenure and career growth potential. Within the billing numbers, clients will look at the risks associated with leavers. Crucially, buyers will want to see evidence that the billing is evenly spread and not weighted towards one consultant. For e.g. 10x consultants billing £300,000 per year is riskier than 20x consultants billing £150,000.

  • Technology and infrastructure

An advanced recruitment tech stack and clearly defined business processes executed by a highly skilled team increases business confidence. BDO’s Recruitment Sector Insights 2018 report highlighted the importance of technology “as the big firms target, through M&A, those with the software to drive their recruitment offering forward.”

  • Profitability

Potential buyers will be interested in not understanding not only the amount of profit, but what the profit represents as a percentage of the overall turnover.

  • Contractor base

Ashley Lawrence, Chief Executive Officer at Trinnovo Group discovered during his MBA that a recruitment business that has higher permanent revenue over contract revenue will receive 1-3 times valuation. Whereas, an agency focusing on contract revenue over perm will receive 7-11 times multiple.

Lawrence concluded that to optimise a business valuation firms should focus on driving contract recruitment weighted at least 60/40 to ensure certainty of earnings and better cashflow to increase the multiple.

  • Locations

BDO stated that 20% of transactions in 2108 involved an overseas buyer, which highlights how buyers are seeking access to new geographic markets. For all sales, both locally and internationally, providing evidence of consistent billing in locations where talent pools are squeezed will make your business more attractive.

  • Customer concentration

A balanced and diverse group of customers is paramount to achieving a higher business valuation. Potential buyers look closely at customer concentration. If they deem the concentration to be at risk or vulnerable owing to a high concentration or reliance on one client, the offer received could be much less.

More on Sonovate and concentration

  • Culture

Potential buyers will want to see metrics such as staff turnover, retention rates, training programmes, incentives and benefits packages. Having a well ingrained business culture will enable the buyer to develop the employee brand proposition with ease.

***

*PEM Corporate Finance, view NFI (Net Fee Income) as a better performance indicator for recruitment agencies (over EBITDA), and is calculated as the total placement fees of permanent candidates, the margin earned on the placement of temporary candidates and the margin earned from advertising.

This blog was written by our Gold Partner Sonovate – for more about Sonovate and their products please click here.

Tax Tips for Recruitment Agencies

Leading Chartered Accountants, Raffingers, have written this article for us on tax tips for recruitment agencies. Raffingers specialise in delivering financial and strategic advice to recruitment businesses.

Tax can be a never-ending minefield. Businesses that don’t regularly review their finances run the risk of being non-compliant and of paying too much tax. These tips are here to help you get more from your recruitment agency and ensure you are running as tax efficiently as possible.

1. Pay Yourself Efficiently

The dividend allowance has been reduced. Since April 2018, the tax-free allowance for dividend income reduced to £2,000. To extract money tax efficiently you need to consider the right split of dividend, salary and BiK.

BUT, did you know that you can also consider paying interest on loans made by directors to the company. To find out more about this process and whether it can help you extract more money from your business, read our article ‘Extracting Profits Tax Efficiently from Your Company’ here.

2. Keep it in the Family

The personal allowance is currently £11,850. Have you considered utilising the personal allowances of family members who are able to carry out duties in your business?

3. Working from Home?

If you work from home, you can claim a tax deduction to cover part of your home running costs. HMRC allow (a modest) £4/week without asking for any evidence. You may be able to claim more, depending on the proportion of your home used for work purposes.

4. Plan Ahead

This is especially important if you aspire to sell your agency in the next 10 years. The best way to minimise your tax bill and maximise value is always going to be to plan ahead. Buyers are interested in profit and will not pay more for ‘potential’, you need to show that you are already successful, have control of your costs and are low risk. Planning for sale in advance will mean you have the right structures and processes in place to minimise your tax bill and get the best value for your agency. Speak to our Partner, Lee Manning, to see where you may be able to save.

5. Can you Benefit from Investment through the EIS or SEIS?

If your company has been trading for less than two years, with less than £200,000 of assets you may be able to benefit from investment through the Seed Enterprise Investment Scheme (SEIS). Or, if your company is under 10 years old, with less than £15million of assets the Enterprise Investment Scheme (EIS) may be for you. These schemes are ideal if you are struggling with your cash flow or require investment to get your business to the next stage.

6. Are you Eligible for Research and Development Tax Credits?

Any business that invests, develops or innovates a product or process could be eligible for Research and Development Tax Credits (R&D). It is not just those who are in the technology sector that qualify. If you have developed a new process, such as an internal system, you may be eligible to claim the relief.

7. Don’t be Caught Out by Unnecessary Fines

Be organised and make sure you are aware of your legal requirements. For example, P11D rules and regulations are complex and the penalties applied for not submitting returns on time are hefty. If you are a director of a company and your company has provided benefits or expenses to either yourself or your employees, you are required by law to provide details of these benefits to HMRC via a P11D. We advise you keep on top of your obligations.

8. Make the Most of Tax-Free Benefits in Kind

There are many benefits that you can deliver to your employees that are not liable to tax and National Insurance, these include:

  • Increased Pension Contributions
  • Childcare vouchers
  • Long term service awards
  • Suggestion Schemes
  • Mobile Phones
  • Subsidised or free canteens
  • Welfare counselling
  • Annual staff parties (cost per employee must not exceed £150, including VAT)
  • Non-cash rewards that are below £50

9. Have the Correct Company Structure

Consider whether your agency would be better off as a sole trader, partnership, limited company or limited liability partnership (LLP). There are pros and cons to each of these structures, all depend on your personal situation and your aspirations.

10. Make the Most of Company Pension Schemes

Pension schemes are deductible for the company and you can select how much you pay into them to reduce the tax you are liable for. For example, for 2018/19 if your income exceeds £100,000, your personal allowance (£11,850) will be reduced by £1 for each £2 of income above £100,000. Therefore, you can opt to increase your pension contributions to reduce your salary and the tax you are liable for.

11. Company Cars

It is often more tax efficient for you to run your own car and claim mileage using HMRC authorised mileage rates. However, if you prefer to have a Company Car, know the rates and which type of car is of better value to you.

Raffingers are specialist accountants for the recruitment sector, helping ambitious agencies achieve their goals. To see how they can support your agency, contact lee.manning@raffingers.co.uk.

Tax Saving Benefits for your Employees

TRN Bronze Partners, Raffingers, have written today’s blog article. Raffingers are specialist accountants and advisors for the recruitment sector, helping agencies of all sizes achieve their ambitions.

In a candidate driven market, agencies are looking at different ways to retain their top employees. Indeed, competitive salaries, benefits and culture play a key role, but have you considered saving your employees tax?

Here we discuss the benefits that can save your employees tax, and do not require you spending too much money. A caveat to this however, is that the savings you can deliver to your employees through the following initiatives are only savings if your employees want the benefit. Therefore, we advise you get the opinion of your employees before implementing any of these suggestions.

Salary Sacrifice

Salary sacrifice schemes are one of the most popular and simple ways you can support your employees. These schemes involve your employees exchanging a proportion of pay to receive a non-cash benefit instead.

Advantage

Employees ‘sacrifice’ a proportion of pay for these benefits, lowering their overall salary and therefore the tax and National Insurance they are liable for.

Also, you will not have to pay Employers’ National Insurance Contributions to the salary ‘sacrificed’ by your employee. It is up to you whether you keep this saving or pass it on to your employees.

Benefits include:

  • Child Care Vouchers
  • Company Car
  • Additional Pension Contributions
  • Technology, such as iPads
  • Training/ Education
  • Buying Annual Leave
  • Cycle to Work Schemes

Share Schemes

You can help attract and retain your key employees through a tax favoured scheme, such as an Enterprise Management Incentive (EMI).
An EMI scheme gives employees the option to purchase shares within the company. Employees would normally buy shares at the market value on options that are first offered (grant). Employees can then profit from any growth in the company when they sell their shares after a period of time, determine by you.

Advantage

The EMI scheme offers several advantages to your key employees:

  • Relief on Income Tax and National Insurance on shares up to the value of £250,000
  • The only tax the employee will be liable to pay is CGT on any profit once the shares are sold. This will be charged at the Entrepreneur’s Relief rate of 10%
  • An employee can use their annual CGT exemption allowing them to save further

Loans for Travel Season Tickets

There are several ways you can support employees with their travel arrangements. You may reimburse the cost, provide a season ticket as part of your benefits package, arrange a salary sacrifice scheme or provide a loan to your employees.

Advantage

Employers can offer interest-free loans up to £10,000 to individual employees. These season ticket loans are completely ‘tax free’ meaning they do not affect the taxable income of your employees one way or another. The benefit is just that employees can spread the cost of an annual ticket across the year instead of paying for more expensive, monthly tickets.

Staff Suggestion Scheme

One way to reward your employees and improve the efficiency of your business is to award your employees for suggestions that benefit your business. Suggestion Schemes have been around for years, the key is to encourage your employees to use them. They are also a great indicator of which employees are engaged with your agency.

There are two kinds of awards approved by HMRC:

  • Encouragement Awards – for good suggestions, or to reward employees for special effort
  • Financial Benefit Awards – for suggestions that will save or make your business money

Advantage

Encouragement Awards are exempt from Tax and National Insurance up to £25 and Financial Benefit Awards are exempt up to £5,000.
Note, to qualify for the tax savings:

  • The scheme must be open to all employees
  • The suggestion your employees make must not be part of their normal work
  • The suggestion can’t be made at a meeting proposing new ideas

These are just a few suggestions of the benefits you can deliver to your employees to reduce the tax both you and they are liable for. For further information on any of these, contact Partner and Recruitment Sector Specialist Lee Manning at lee.manning@raffingers.co.uk.
Raffingers are specialist accountants and advisors for the recruitment sector, helping agencies of all sizes achieve their ambitions.