Travel and subsistence - is HMRC even listening?

Words by Julia Kermode, FCSA

I recently shared a platform with HMRC representatives and IPSE to chat, debate and share our combined thoughts on the potential impact of the pending Intermediaries Travel & Subsistence legislation - a hot topic at the minute.  Andy Chamberlain from IPSE and I aired our concerns and I hope HMRC listened.

To set the scene, HMRC believes that the Chancellor is missing out on £265m and reckons that freelancers and contractors enjoy unfair tax advantages under the current system. But this figure is massively inaccurate, as it includes both tax and NICs, even though NIC relief has already been removed by the Finance Act 2015 earlier this year.  So not only is the figure optimistic at best, it's incorrect and any savings directly related to this policy would be a lot less than suggested. 

It's fundamentally wrong to develop and propose legislation where the proposals aren't are underpinned by robust evidence, and penalise a group of workers which are so valued by the UK. By reducing the income of hardworking contractors, the proposals will unbalance the playing field and disadvantage the very workforce that has been central to the economic recovery.

FCSA research shows that almost 50% of contractors don’t claim travel and subsistence that they are due anyway - right away dispelling the consultation's arguments that expenses are systematically exploited.  This is simply untrue, and in fact expenses are only claimed as necessary due to cost and distances travelled, in order to make an assignment worthwhile.

The Government doesn't seem to recognise that the very nature of working as a freelancer or contractor means filling a series of short-term, non-permanent roles at a variety of temporary workplaces.  It's fundamentally different to the “ordinary commute” that they wish to target. 

Travelling to a series of temporary workplaces doesn't allow the luxury of working close to home and incurs extra costs that permanent employees just don't need to bear. For example, permanent employees will often buy season tickets (or have a season ticket loan as a benefit of employment) to reduce the cost of their 'ordinary commute', whereas freelancers and contractors go to any number of locations for work and are therefore unable to access the same kind of savings.

HMRC proposals are based around the application of Supervision, Direction or Control (SDC) to work out if a worker is eligible for T&S tax relief – but it's hard to see how this reflects a temporary workplace, and it has no relation to what a temporary worker does.

All workers will be assumed to be under some form of SDC unless it can be shown otherwise.  So, the default position is no tax relief, and the freelancer and contractor have to prove a negative in order to gain the relief.

It's pretty rare that any type of contracted work will be done without some sort of SDC, and it's very hard to see how this will allow for legitimate tax relief on T&S expenses to be claimed. Many FCSA members have expressed confusion and concern over these conditions which will only serve to damage the flexibility of the worker even further.

Under the new legislation, there is no question that we will see a skills shortage as fewer workers will be willing to travel for assignments.  We live in a contractor driven marketplace, and a skills shortage will affect businesses ability to be agile.  Locations outside of London will be hardest hit - and in fact any areas where the local population might not have the niche skills that contractors offer.

The skills shortage will affect Government policy, and George Osborne's 'Northern Powerhouse' could suffer, along with key infrastructure projects which rely traditionally on freelancers and contractors. The nuclear industry will also miss out.  Teachers, pharmacists and engineers will too. The list goes on... 

Just this month the ONS published figures comparing UK productivity with the international scene in 2014; output per hour and per worker fell 20 percentage points below the average of other major G7 economies.  This is a big worry for businesses and workers, as well as a political issue with the Chancellor, who, back in July pledged to increase the UK's productivity to enhance our global competitiveness.

Everyone knows the flexible workforce is key to the UK’s growth and productivity - which is why it needs to be nurtured, not punished. At the FCSA, we believe proposed approach by HMRC to specifically target employment intermediaries on claiming tax relief is disproportionate, based on a false understanding of the sector and will have a massive impact on the UK's flexible workforce.

Last year Government embarked on a broader review of T&S expenses in general, and this work is ongoing with HM Treasury issuing a discussion document just last week.  I cannot understand why there is a need to consider intermediaries T&S ahead of the whole review.

So, it's time for Government to genuinely show 'joined up thinking' and delay any changes that occur in tandem with this wider review. Doing this would be in keeping with Government's desire for fairness and a level playing field, with all sectors and labour markets being treated equally.

The proposed legislation will:

- reduce income for workers

- reduce flexibility

- un-level the playing field and put contractors at a disadvantage

- create a skills shortage

- damage UK productivity and the UK economy

So, let's urge the Chancellor to think again...

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