Time for a U-turn
- 1 Oct 2015
Government changes to Travel and Subsistence allowances will have grave consequences for the UK’s 4.5 million self-employed.
For many self-employed workers in the UK, mobility is absolutely key to doing business. A vast number of freelancers take up contracts from all around the UK, as clients search for the contractors who have the specialist skills and expertise to get the job done.
Currently freelancers that operate their businesses through limited companies can claim tax relief on the costs of their business travel and work-related subsistence (T&S), just like larger businesses.
We believe these are legitimate costs and freelancers must be able to continue receiving them to remain competitive. We asked IPSE members for their feedback and their voice came through loud and clear. We were told that losing this tax relief could cost many freelancers thousands of pounds. This can equate to tax relief of 20 per cent of their annual turnover.
Some freelancers may no longer be able to operate at all
The UK’s smallest businesses make an essential contribution to our economy, yet our research found that if this proposal is implemented, 17 per cent of independent professionals may be unable to afford to take on contracts and could be forced to close their businesses. This would not only detract from our economic stability as a whole, but also result in a loss of tax revenue for HMRC, defeating the entire point of the legislation.
Freelance rates will increase, making business more difficult for larger companies in turn
Our research also found that 85 per cent of freelancers would be forced to charge more for their services to make up for the shortfall in their income. We are deeply concerned that rising prices will then discourage businesses from using freelancers, removing crucial flexibility and expertise from the UK’s economy.
Many freelancers will be forced to turn down contracts which aren’t in their immediate local area
Alarmingly, 76 per cent of the respondents to our survey are concerned that they will be restricted to taking on contracts within 50 miles of their home or office – which in some parts of the UK, simply don’t exist. These contracts are likely to be taken on instead by larger companies, who are still able to claim this tax relief and are placed at a clear competitive advantage.
Shifting the burden of SDC onto the client
The Government’s proposal includes the possibility of transferring responsibility of determining Supervision, Direction or Control (SDC) to the engager – which in most cases is the client. This creates a serious risk that the engager will simply decide that either all of their engagements are under SDC, or they all are not, in order to reduce the administrative burden and reduce the risk of any liability, placing genuine freelance businesses at risk of unfair taxation.
We are urging the Government to reconsider their proposals due to their effect on the flexible labour market, the companies which rely on the flexible supply of specialist skills, and the wider economy. The effect on overall tax revenue is also likely to be more significant than expected as many freelancers lose contracts to larger competitors who are able to claim a wide range of reliefs.
IPSE has responded to the Government’s consultation on this issue. But our campaign will not end there. We will continue to fight these unfair proposals which are putting thousands of businesses at risk until they are reversed or a fairer settlement is agreed.
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