2021: Upcoming changes to accounts and finance for recruitment companies
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As the nation enters into 2021, IMS Decimal highlights the key changes in accounts and finances, and how these will impact the recruitment industry.
Upcoming changes
- UK recruitment industry prepares for changes in IR35 legislation
- Construction industry faces VAT Reverse Charge
- Deadlines for coronavirus loan schemes
- Increase in National Minimum Wage extends to 23 and 24 year olds
1. Changes to IR35 take effect from April 2021
The changes to IR35 legislation were set to come into play from April 2020. However, with the outbreak of the pandemic, the UK government has deferred this until April 2021.
What is IR35?
IR35 was an anti-tax avoidance scheme created in 2000. The changes in legislation place the responsibility onto the end-user to determine an employee’s employment status, as opposed to the employee deciding for themself. Where the employee falls under IR35, the end-user will now be responsible for withholding income tax and making any eligible payments such as pension and employer tax.You can learn more about the upcoming IR35 changes here.
2. New VAT Reverse Charge for construction companies
VAT fraud has long been an issue particularly among construction companies in the UK.
As a result, the government has introduced changes to the way that VAT registered construction companies account for their VAT charges.
Previously, the subcontractor supplying goods would be responsible for accounting for the output VAT due. However, under the new legislation, the contractor receiving the goods or services will need to account for the output VAT due.
This change will only affect VAT registered construction companies providing goods or services to non-consumers, and will come into effect from 1st March 2021.
How will VAT Reverse Charge affect recruitment companies?
In the past, VAT registered construction companies have had a strong tendency to rely on their output tax as cash for unrelated payments. As a result of the new legislation, construction companies won’t be able to avoid paying their output VAT, and may encounter cash flow issues.
Many construction companies will need to change their internal processes and review their accounts to facilitate the new change.
Recruitment companies may find that clients in the construction industry fall behind on paying their invoices or struggle to make payments. To prepare for the change, recruitment companies should review their processes and the accounts of any companies that fall under the VAT Reverse Charge category.
3. Applications closing for coronavirus loan schemes
After the UK went into lockdown, the government announced 3 new loan schemes to help support businesses of different sizes: Bounce Back Loan Scheme (BBLS), Coronavirus Business Interruption Loan Scheme (CBILS), Coronavirus Large Business Interruption Loan Scheme (CLBILS).
Whilst these schemes have offered valued support to businesses throughout the pandemic, applications for the schemes are set to end.
Latest closing dates for UK coronavirus loan schemes:
- BBLS: applications close on 31 January 2021
- CBILS: applications close on 31 January 2021
- CLBILS: applications close on 31 January 2021
Because of the financial turbulence businesses have faced this past year, candidates are likely to be more preoccupied with the financial stability of an employer before making a job move. Candidates will want to ensure that they’re not moving to a sinking ship.
Therefore, recruiters may find they need to take more time to understand the financial position of their clients. This will help recruiters to reassure candidates when making a job move. As such, it may be necessary to carry out credit checks on clients and explore any red flags with them.
Learn more about our outsourced credit control services here.
4. Minimum wage increasing from April 2021
From April 2021, the UK government will be increasing the National Minimum Wage (NMW) for millions across the nation. In addition to this, the top tier NMW will now also apply to 23 and 24 year olds. The apprenticeship wage will see the biggest increase by 3.6%.
What is the UK National Minimum Wage changing to?
- Age 23+ - increase from £8.72 to £8.91 (2.2%)
- Age 21-22 - increase from £8.20 to £8.36 (2%)
- Age 18-20 - increase from £6.45 to £6.56 (1.7%)
- Under 18 - increase from £4.55 to £4.62 (1.5%)
- Apprenticeship wage - increase from £4.15 to £4.30 (3.6%)
Recruitment agencies will need to ensure they’ve updated all applicable worker contracts and internal payroll systems. Recruiters may also need to increase their client margins to make sure their services still remain profitable.
Since the government has extended the NMW upper bracket to 23 and 24 year olds, agencies may also notice that clients prefer to hire candidates under 23 as a means of saving costs.
5. Job retention scheme to close
The government’s Job Retention Scheme is set to end on the 30th April 2021. Ever since the start of the pandemic, the government has been able to offer companies financial support which has helped to minimise redundancies.
As of June 2021, it seems that companies will restart paying staff wages as normal, without any government assistance.
Recruitment agencies may find themselves needing to make redundancies or find more affordable alternative ways of working. Similarly, agencies may find that their clients also experience cash flow issues which could result in more redundancies and a drop in hiring.
How can recruitment companies prepare for the end of the Job Retention Scheme?
- Review accounts and finances with CFO
- Streamline processes to remove inefficiencies
- Outsource certain aspects of the recruitment process
- Find more affordable systems / software Ask clients how they are preparing for the end of the JRS
6. End of VAT cuts for hospitality and tourism
The government reduced tax for businesses within the hospitality and tourism industry from 15th July 2020. VAT was reduced from 20% down to 5% for eligible companies. This scheme is set to end on March 31st 2021.Businesses that were eligible for a VAT cut:
- Eat-in restaurants
- Hotels and holiday accommodation
- Admissions for entertainment venues like cinemas, theatres etc
Any recruitment companies specialising in the hospitality, tourism and leisure industries should speak with their clients in advance to understand how they plan to overcome any obstacles.
Planning for the future
There are certainly many changes for recruitment companies to consider in 2021. Some changes may affect recruitment companies directly, such as IR35 and the increase in NMW. This gives recruitment companies more control over the changes.
In other areas, recruitment companies will be affected indirectly, such as in the VAT Reverse Charge and the end of VAT cuts for the hospitality and tourism industries. Recruitment companies are limited in how much control they have over these changes.
Regardless, it’s clear that recruitment companies need to plan ahead, refine their own processes, review accounts, and also develop a deeper understanding of their clients’ financial positions.
To successfully navigate these changes, recruitment companies will need to use a combined effort from their back office team, their recruiters, and potentially outsourced financial experts.
If you’d like to learn more about how IMS Decimal is supporting UK recruitment companies with their accounts and finances, you can contact us here.Read next: A year in review: Impact of COVID on UK recruitment industry
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