When it comes to predicting the future of the economy, nobody has a crystal ball, but consensus seems to be building that it’ll be a long, slow recovery. An FT survey of 90 Economists predicts that the economy won’t get back to pre-pandemic levels until the middle of 2022 with the UK being one of the last major economies to recover. There is a minority that believes that we’ll come roaring back surfing a wave of vaccine fuelled consumer spending. And there is some evidence to support this with a holiday bookings surge, EasyJet have reported that bookings for the summer are up 250% compared to January 2020.
But one thing’s for sure. The Government has a big financial hole to fill. Annual government borrowing will reach levels only previously seen during world wars, while the national debt will be bigger than the economy, reaching 110% of GDP by 2025 (BBC). The Institute for Fiscal Studies states that tax increases totalling £40bn are “almost inevitable”. HMRC are already spooling up for this challenge, they’re on a recruitment drive with the stated intention of hiring a further 3,000 inspectors/auditors. This gives them a previously unknown capacity and focus on enforcement.
There are already rumblings about increases to Capital Gains Tax and Corporation Tax. And these will go some way to plugging the gap.
But the implications for Recruiters could be huge. The Umbrella Company has been the default way to pay contractors for decades. And over the years it has served our industry reasonably well. But it’s fair to say that the Umbrella’s looking a little past it.
The benefits aren’t what they were now that expenses and subsistence have been tightened up and it seems that every year, some unsuspecting group of contractors are caught out by a too-good-to-be-true Umbrella scheme.
Of course last year, it all got very real for thousands of teachers. Because of an old piece of legalese, many teachers weren’t able to access furlough payments. The employment contracts of many intermediaries contained dangerously outdated ‘National Minimum Wage + bonus’ clauses. Because the furlough scheme is calculated on guaranteed earnings (ie. not commissions/bonuses) this slashed the value of furlough payments to thousands of teachers meaning that huge numbers of contractors suffered a long wait for much needed support.
That’s the risk with using a solution that works most of the time, but not all of the time. The regular refrain is always ‘Yes, but our Umbrella is completely safe.’ and we get that. At People Group, we have our own Umbrella solutions that are compliant and safe. But is that where we see the industry going? Absolutely not. Steve Jobs was very fond of a Wayne Gretzky quote ‘Skate where the puck’s going.’ It’s an approach Apple baked into its products. Don’t wait to be made obsolete, get ahead of it. Long-term, we believe the Umbrella will die out. It is possible the Government just does away with them. But either way, where’s the benefit in waiting? We believe the PEO model is the way forward and have heavily invested in People PEO, which has been reviewed and recognised by HMRC. To us, that’s where the puck’s going.
But the danger could be more immediate. Going after tax avoiding corporations and schemes is an easy win for the Government. Nobody’s going to shed many tears for them. So expect a far more aggressive regime when it comes to dodgy Umbrellas and non-compliance.
Payroll is key to understanding if you’ve a problem. Recruiters are optimistic entrepreneurs and many don’t want to get into the weeds of their payroll system. But now’s the time to make sure that your house is in order. Some Umbrellas sail close to the wind when it comes to tax loopholes. 2021 will be a dangerous game of chicken to play with HMRC.
Make sure that your payroll provider conforms to the highest professional standard and that none of the payroll options you offer could be a problem.