Comments sought on contractor tax relief

Tuesday 26 January 2016

Companies in the UK are being urged to give their opinions on the removal of Travel and Subsistence tax relief for contractors and freelancers - specifically, how this move will impact the country's businesses.

The CBI, CIPD, REC and FCSA have asked firms to complete a survey on the legislation by January 29th. The organisations hope that this will provide them with a clear picture of how the removal of this tax relief will affect the wider economy. 

Indeed, CEO of the FCSA Julia Kermode suspects that the impact has been widely underestimated.

"This survey will give us the evidence we need so that we can present a case to government before the February 3rd deadline spelling out just what the impact will be as we believe it has been significantly underestimated," she stated.

Among the key concerns raised is that businesses will likely end up covering the cost of the removed tax relief in the form of increased contractor and freelancer fees. The FCSA suggests that such individuals will be forced to raise their rates in order to maintain their level of income, with the changes expected to shrink contractor incomes by an estimated £3,500 per year.

However, rising prices are not the only cause for concern. The FCSA also suspects that the removal of Travel and Subsistence tax relief could spell the start of a skills shortage. This will come from fewer workers being willing to travel to assignments, creating skills gaps for businesses seeking specialist expertise.

The ultimate goal of the survey is to provide clear evidence that the CBI, CIPD, REC and FCSA can present to the government with a view to preventing this change from taking place.

Originally announced in December 2015, the removal of Travel and Subsistence tax relief will affect any contractor, including those operating within a limited company, within IR35 (those outside IR35 will still be able to claim). This will come into effect in April 2016.

For new and experienced contractors alike, it presents another facet of tax to get to grips with. If you need any help understanding your tax position or how to claim on expenses, Brookson can help.

If the FCSA is right and the change does push up contractor rates, it may contribute to an environment of rapidly increasing contractor prices. Earlier this month, a report by the Recruitment & Employment Confederation, alongside KPMG, revealed a skills gap within the contractor market.

This widening gulf between contactor availability and demand could lead to an upswing in pay levels which, when combined with potential increased rates to cover extra travel and subsistence costs, could see businesses paying significantly more to access the vital skills they need from such professionals. 

The REC/KPMG Report on Jobs for December 2015 suggests that this skills gap seems to be affecting all sectors.

By Victoria McDonnell

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