Proposed expenses cuts could cost contractors

Proposed expenses cuts could cost contractors

14 October 2015

New research has found that proposed changes to contractors' travel and subsistence allowances could cost them up to 20 per cent of their annual revenue. 

In July of last year the government launched a review into expenses and benefits for contractors. On 23 September 2014 they published a discussion paper outlining their case for changing the current rules on tax relief.

The government believes that travel and subsistence expenses, like travel between workplaces and the cost of a meal at a temporary workplace, are over generous and outdated.

Overnight expenses, such as the cost of a hotel room and an evening meal/breakfast, are not affected by the proposed changes.

Criticism from the self-employed community

The proposals have been met by severe criticism from the self-employed community in Britain.

In direct response to the discussion paper, The Association of Independent Professionals and the Self Employed (IPSE) conducted a survey of their members to try and gauge the proposals' likely impact on self-employed contractors.

Many IPSE freelancers complained that they would be missing out on thousands of pounds of take home pay each year. In the worst cases, freelancers who travelled a lot for work reported that the cuts could amount to 20% of their annual turnover.

Worryingly, 17% of respondents were concerned that the proposal would restrict their ability to take on new contracts. As a result, some feared that they would have to close their businesses.

In addition, 85% of freelancers said they would have to pass on the extra costs to clients and increase their prices, while 76% of respondents said they would be restricted to working within a 50 mile perimeter of their permanent workplace.

Jon Biddle, Group Chief Operations Officer at Umbrella.co.uk said: “IPSE has collected some insightful but troubling statistics. Going ahead with these changes could put a lot of contractors in difficult positions.

“I worry that highly trained contractors who work all over the UK will suddenly find themselves trapped in one tiny corner of the country. But the biggest danger is that small contractors will find it hard to compete with their bigger rivals who may have access to more favourable tax reliefs.”

The Chancellor, George Osborne, will deliver his Autumn Statement on 25th November 2015 where an announcement regarding any changes will be made.

Have your say on the government’s proposals; send an email to TravelandSubsistenceReview@HMTreasury.gsi.gov.uk. The consultation period will close on 16 December 2015.