Brolly good Budget? It is for some – but when it comes to umbrella companies it’s still full of holes.
Directors of Lytham-based Danbro Group reached one unanimous conclusion after studying the fine print of George Osborne’s pre-election “austerity to prosperity” Budget.
And it was this: the devil was very definitely in the detail – and a lot of the detail has yet to be thrashed out for those at the sharp end of the ‘clampdown’ on umbrella companies.
It may have been a good Budget for drivers, apprentices, low paid workers, beer and cider drinkers, first time buyers, savers and those who dread filling in the annual tax return but when it comes to clarifying what other changes may mean to temporary workers, contractors and personal service companies, agencies and others, it’s very much a matter of wait and see.
Or as dynamic Danbro puts it – continue playing a key role in the ongoing consultations with HMRC and others rather than sit on the sidelines playing the waiting game.
“They have a year to get this right and we will continue to have a say in that process,” declared Damian Broughton, Managing Director of Danbro accounting for life.
“We haven’t got where we are by bending rules or promoting avoidance. We have been proactive in our policies and play it strictly by the book and give the best possible service and peace of mind to our clients.
“What most of us seek is tax simplification and fairness. We welcome any measures that seek to eradicate abusive practice. However when added to ongoing initiatives by BIS and the OTS this Budget unnecessarily complicates things probably in response to the mood of discontent concerning avoidance.”
Under measures to take effect from April 2016 HMRC is proposing that tax relief for home-to-work travel expenses will be restricted for umbrella and personal services companies if their end-user supervises, directs and controls them. Somebody who ‘broadly looks’ like an employee will not be entitled to relief whereas someone who looks like a self employed worker will continue to be entitled.
The Chancellor declared: “We will stop employment intermediaries exploiting the tax system- clamping down on the agencies and umbrella companies who abuse tax reliefs on travel and subsistence.” He insists the “genuinely self employed” will not be hit by the changes.
The Government says it will launch a consultation this summer which will work out the finer detail – and Danbro aim to be part of that consultation process as they have, with HMRC and others, to date.
It runs alongside another consultation on ways to ensure that workers who are provided to clients through an intermediary ‘will have greater transparency on how they are employed and what they are being paid.’
Mr Broughton said the next 12 months would hold the key to clarifying most of the complexities of a system currently being reviewed by not one but three agencies, HMRC, the Department of Business Innovation and Skills (BIS) and the Office of Tax Simplification.
“We need more clarity, not less, and the Budget has merely underlined the fact we need a more cohesive policy. Where there’s a conflict or a misinterpretation there’s potential for a problem.
“We’re engaged in the consultation working on behalf of the contractors who are not going to go away and we have to ensure that they get a fair deal.”
Group Development Director Rob Kenmare agreed: “Danbro will do what it has always done, meet the needs of clients in a 100 per cent compliant manner, honouring both the letter and the spirit of the law.
“We are totally in step with the Government’s desire to tackle avoiders who repeatedly abuse and exploit the system. However there is a risk of tarring all providers with the same brush.
“And we still don’t understand why HMRC, BIS and the Office of Tax Simplification are working independently and not together. What we would like to see most of all is a coherent Government strategy for the independent workforce.”
Mr Broughton pointed out: “The contractor market is a cornerstone of UK PLC, this nation’s economic recovery, what Mr Osborne calls the ‘comeback country.’ It deserves to have a level playing field. We have to wait for the detail.”
However, the directors applauded other elements of the Budget package.
Mr Kenmare said: “As Budgets went it was a typical pre-election budget. It brought good news to the man on the street – and the figures for employment were encouraging.”
The Chancellor claims his Budget will do more to back business, create more employment, particularly in the North by investing in the ‘Northern power house’, and indeed, locally, for Lytham based Danbro, with the creation of the Blackpool Airport enterprise zone.
Plans to extend so-called ‘City deals’ – particularly to contractor-heavy areas of Scotland where the fall in crude oil prices are affecting prosperity – were also well received by Directors Kenmare, Chris Rhodes (Umbrella), and John Thorburn (Accountancy).
MD Broughton felt there could be a gain from the ‘death’ of the annual tax return – instead collating the tax affairs of millions of Brits from employers, banks and investment firms into a single digital tax account which could be checked at any time online.
Mr Kenmare agreed: “For an individual it should make things easier but others will still have to input some elements manually. It may encourage people who need advice to come to reputable professionals to provide it sooner.
Mr Kenmare also highlighted business-pleasing budget changes. “For small businesses particularly the statement that the reduction in the annual investment allowance isn’t going to be reduced to the previously stated £25k from half a million is a positive – although we won’t know how good the news is until this is announced later in the year.
“Given that he was emphasising that growth and success were fuelled by business investment it’s to be hoped he continues the allowance at a meaningful level. The continuation of the national insurance exemptions particularly to apprentices is a good thing too.
Other gains were cautious tax breaks for middle Britain, part funded by increasing the levy on Britain’s banks, claw backs from the richest pension pots, an easing of the debt target and, arguably, through a widely predicted “bloodbath” to come in post-election public sector funding and welfare cutbacks.
Mr Osborne claimed that the UK was ‘walking tall’ from austerity to prosperity, growing faster than any other major economy in the world, 50 per cent faster than Germany, seven times faster than France.
There were wins at one end of the scale. There’s a higher personal allowance of £10,800 on earnings, and the abolition of Class Two National Insurance Contributions.
Seventeen million people will no longer have to pay tax on savings, with basic rate taxpayers not having to pay tax on the first £1k of interest earned – and higher rate taxpayers gaining from a new £500 tax free allowance.
There are additional ISA allowances which will become more flexible. First-time buyers were also offered government top-ups on their savings for a deposit to purchase. A new form of ISA will see the Government add £50 for every £200 saved towards a deposit on a first property, capped at £3k for those who save £12k.
“This can only be good news for young people trying to get on the property ladder or others wanting to move from private rentals,” said Mr Broughton.
“It’s good to see an incentive for younger savers.”
But he expressed concern that the amount higher earning individuals can save tax free into pensions via their lifetime allowance will be £1m, down from £1.25m.
“It may seem like a lot of money but there are higher earning head teachers, civil servants and NHS workers who could conceivably be affected by that with regard to their lifetime allowance.”
Since being introduced in 2006 the limit has been reduced several times – as recently as April last year when it dropped from £1.5m to £1.25m. In 2011 it stood at £1.8m.
The Government announced a consultation to extend pension freedoms to give pensioners who have already bought an annuity the option to cash in – rather than retain existing secure annuity income longer term.
Mr Kenmare concluded: “It was a political rather than economic budget, no change there, not with an election coming.”
Jacqui Morley PRCA