HMRC proposed changes for Interims-1st April 2016

blackcloud

It appears that there is a black cloud on the horizon that will have a significant impact on the senior interim market, and many clients and candidates seem to be oblivious. This surprises me most as in the Housing market, there is a massive reliance on interims who will travel or stay away during the week, especially at the moment when the market is in turmoil following the Autumn Statement.

I’m not going to detail the full details here- (you can do your own reading the link here), but I thought it would be worth highlighting how the changes could possibly impact you (as an interim) or your organisation (as the client)- because it will either way! Equally, its worth stating that the below is not legal advice on what you should do, but should give you food for thought, or help you to consider the right things when engaging on your next assignment.

Chancellor George Osborne speaks during the Conservative press conference with Theresa May, Home Secretary, William Hague, First Secretary of State and Leader of the House of Commons, Sajid Javid, Culture Secretary and Nicky Morgan, Education Secretary and Minister for Women and Equalities at Altitude 360, London.

So what are they proposing?

In the Summer Budget 2015, George Osborne stated,” “We will stop employment intermediaries exploiting the tax system to reduce their own costs by clamping down on the agencies and umbrella companies who abuse tax reliefs on travel and subsistence – while we protect those genuinely self-employed.”

During the Coalition, many of these threats may not have come to fruition, but with a majority party in charge, that has changed.  Now it is on the horizon, it isn’t as comprehensive as was suggested above, but the main issue is around whether people fall inside or outside of IR35 (IR35 is explained here)

Why will that impact me (as an interim)?
There are a couple of considerations here. Firstly, if you are working through an umbrella company or your own Limited Company and are operating within IR35, you will NOT be allowed to claim travel or subsistence expenses and therefore claim tax relief against these costs. The key aspect that will likely affect many interims (in the Housing market at least), will come down to how they engage with the end client-i.e. do they come under “Supervision, Direction, or Control”(SDC) from the client? If so, then you no doubt fall into IR35, and are therefore unable to benefit from tax relief.

Why will that impact me (as a client)?
Surely, you shouldn’t need to worry about whether your interim is claiming travel and subsistence?  Well, that has been the case up until now.  These costs are often not passed on to you, but that may well change, as the costs of staying away can mount up for an interim.  In an increasingly competitive market, they will likely not be able to absorb that additional cost.

The main thing that will impact you will all hinge on the following question:
What is your requirement?
If you need someone to cover a period of absence of one of your exec team, then the interim will likely come under some aspect of SDC and therefore fall into the IR35 regulations. In the past, that wouldn’t bother you either way as you’d see no impact- however, you will now either be forced to only consider local interims (who won’t be claiming travel and subsistence to work), or be prepared to consider interims on a day rate PLUS expenses basis. As the client, this is an added cost that you won’t have incurred in the past.
If however, you are able to engage someone through providing a brief, and leave the interim to achieve this without any SDC, then you should see no impact.

My one piece of advice is speak to your accountant and see how it will impact you directly, so you can make sure you are on the right side of this key legislation change- you don’t want to be a Maria Sharapova and claim to have not seen that email!

The key consideration here is whether the interim falls into IR35, and that is down to the engagement on the assignment.  A traditional consultancy piece of work will often fall out of this, but should you have a “babysitting” requirement, it will be more difficult to avoid.  Therefore, both client and candidate need to have an open conversation about requirements and rules of engagement to ensure they understand which side of IR35 they then fall on.

The concern is now that there is the possibility of a two tiered market which will create confusion and misunderstanding. It will make competition for assignments very difficult if you are competing with a local candidate (not necessarily a bad thing), but is a geographically silo’d interim market a positive thing?

Consider the following scenario. the Housing market is under intense pressure nowadays and many interims are carrying out important pieces of work for their clients across the country. If you need to bring in an interim to help affect some significant change to help achieve your corporate objectives and you are faced with 2 candidates- a local, cost effective option (although not able to deliver the full scope of work required) and a perfect candidate who is charging expenses on top, who do you go for? In the long run, the second option will deliver more savings than the total cost of expenses, but are you able to justify that to the Board (or your customers) at the initial engagement?

The market is changing, and it is key that you understand what is happening because even if its not impacting you or your organisation directly, it will possibly have a knock on effect and you need to be prepared for that.

If you want to discuss it in any more detail, feel free to get in touch.