Freelance workers and contractors are calling on George Osborne to review planned changes to the rules covering tax relief for claims for travel and subsistence (T&S) expenses in this week’s autumn statement, saying estimates suggest this could cost contractors an average £200 a week and will increase the burden for employers
The changes were initially introduced at Budget 2015 in March, and then subject to a consultation which closed at the end of the September.
The proposals are being brought in from April 2016 and will restrict the T&S tax relief available to workers who are supplying personal services, engaged through an employment intermediary, such as an umbrella company or personal service company (PSC), or are ‘subject to supervision, direction and control.’
Accountancy firm Danbro polled over 400 contractors and found 90% currently claim T&S expenses, while almost 70% have a contract of a year or less. Only a quarter (24%) say they would take on a contract without tax relief on expenses. Danbro estimates those who do will see average pay cut by up to 20%.
The firm says the average contractor operating through a PSC within the engineering industry has expenses of £7,083 per annum. If the claiming of T&S is restricted, an individual with a £40,000 annual turnover would lose £1,842 after tax from April 2016, while someone making £80,000 would see a £3,259 drop.
Damian Broughton, Danbro’s managing director, said: ‘The government is quite rightly aiming to crack down on tax avoidance but this move is at best, misguided, and at worst, completely counter-productive for the UK economy.
‘Contractors are a vital resource of skills for thousands of UK businesses and waging war on this sector for a £265m return to the taxman is shortsighted.
‘Chancellor Osborne must revisit these proposals and look again at the existing rules and ensure they are being enforced rather than just taking a new approach that penalises everybody. This new system is unfair, will heavily impact UK industry and attacks the modern British way of working.’
Online accountancy firm Crunch said research with 1,000 of its clients who are UK freelancers found that 82% said they regularly spent more than a month on-site with clients, and 79% reported they would not continue as freelancers or contractors if planned tax changes went ahead. Almost 90% of micro-business owners feel the current government does not understand their needs or support them, the survey revealed.
Trade body Prism has launched a campaign, Yes2T&S, specifically to argue for changes to the new rules and says Whitehall is showing ‘appalling complacency’ as it will feel the impact if large numbers of freelancers decided against taking contracts when they can no longer claim for T&S tax relief.
The group used Freedom of Information requests to ask departments in charge of education, health, energy and climate change and transport what measures they had taken to try to assess the impact of the policy change. They all revealed no impact assessment had been carried out.
Crawford Temple, Prism CEO, said: ‘How can you plan for expenditure if you don't foresee the most flexible workers, those you turn to when gaps appear, expecting significantly more for their time?’
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