However, if you employ workers through an umbrella company they are to be hit by a new tax change, which is forcing recruitment firms to rethink this side of their business.
From 06 April 2016 some umbrella company contractors (along with PSC contractors captured by IR35) are no longer able to claim tax relief on travel and subsistence (T&S) expenses.
The umbrella company and its directors will now be liable for any unpaid tax. A second transfer of liability will also be introduced, moving debt to another relevant party where they have provided a fraudulent document that misled the umbrella so the T&S relief was allowed.
It is estimated that around 430,000 individuals employed by umbrella companies and employment agencies will be affected over the course of the year.
How much is this likely to cost the average contractor?
HMRC estimated that workers would be £360 a year worse off under these changes. However, some within industry disagree. One such example is the Construction union UCATT, who estimate that an average construction worker working for an umbrella company will have £144 of weekly travel expenses.
Under the new rules, these expenses would then be taxed at 45% (20% income tax, plus both employees and employers NIC). This will mean a loss of £64.80 per week or £3,369 per year.
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Contact ourrecruitment accountants if you would like to discuss how we can assist your agency.
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