The Freelancer & Contractor Services Association (FCSA) – the UK’s leading independent trade body for umbrella employers and accountancy service providers supporting the flexible workforce – has expressed its disappointment that the Government has not listened to the widespread warnings issued by the industry and has pressed ahead with its plans to cut travel and subsistence expenses for contractors.
FCSA contests that it will have a significant impact on the UK economy in both the private and public sector; FCSA has identified that 47% of supply teachers, 90% of social workers, 89% of shift doctors, 94% of locum doctors and 88% of allied health professionals will be impacted by cuts to contractors expenses.
Government legislation to deny Travel & Subsistence tax relief for contractors and freelancers will have a significant impact on British business and the very many companies which rely on the flexible workforce for its expertise and skills. This warning is issued from The Freelancer & Contractor Services Association (FCSA), the UK’s leading independent trade body for umbrella employers and accountancy service providers supporting the flexible workforce.
FCSA is keen to point out to end-hirers in UK plc that if the legislation goes ahead there will be fewer workers willing to travel to assignments which will, in turn, create a skills shortage. This will undoubtedly lead to higher assignment rates to attract the appropriate workers to fulfil the temporary need of a project and contractors and freelancers will be forced to increase their rates to take the travel and subsistence costs into account.
Julia Kermode, CEO of the FCSA said: “The UK’s continued shortfall in productivity levels will be of major concern to UK employers and its workforce. An organisation’s ability to be flexible and agile – already acknowledged to have been vital to the UK’s resilience within the downturn and recovery to date – must be of paramount importance to UK plc. So, I simply cannot understand why the Chancellor wants to penalise the very workers and the companies that hire them by removing T&S tax relief.”
HMRC’s draft legislation is based around the application of Supervision, Direction or Control (SDC) to establish if a worker is eligible for T&S tax relief but, in reality, the test is vague and unworkable.
FCSA data also shows that almost 50% of contractors do not claim the travel and subsistence expenses that they are due which dispels one of the arguments that expenses are systemically exploited; in fact, expenses are only claimed as necessary due to cost and distances travelled in order to make an assignment viable.
Reacting to the announcement, Julia Kermode, CEO of the FCSA said: “There will undoubtedly be a knock on effect and Government policies that are heavily reliant on contractors will be hit – the Northern Powerhouse will suffer along with other infrastructure projects which rely on contractors. The nuclear industry will also miss out along with the public sector.
“The Government is determined to penalise the flexible workforce on which it relies to help grow and develop the UK economy. It makes no sense, but we will work with recruiters and end-clients to ensure its effective implementation in the best interests of the supply chain and the workforce as a damage limitation process. We did it in 2014 when the Onshore Intermediaries legislation came into force and we can do so again for T&S.”
Though FCSA has welcomed the extra measures included in last weeks 2016 Finance Bill which clarified long awaited details on restricting travel and subsistence tax relief for those contractors working through an intermediary.
The latest amendments will now prevent the organised misuse of personal service companies (PSCs) to avoid the restrictions; the original draft meant that PSCs would not be caught if they were outside of IR35, whereas other intermediaries would be caught unless they could prove the worker is not subject to supervision, direction or control (SDC). Therefore, it would be possible for PSCs outside of IR35 to receive the tax relief even if they were subject to SDC and it is this potential abuse that has been addressed.
Julia Kermode, said: “From the outset we have been concerned that the T&S reforms could encourage inappropriate use of personal service companies, knowingly or unwittingly, within the supply chain. It may not always be the best mechanism for workers, potentially putting them into a more precarious position than previously. For example they may not be aware of the full implications; the legal and financial responsibilities as a company director that cannot be delegated. In addition, the individual will not be eligible for any statutory employment rights, such as minimum wage, holiday pay, which could be an unpleasant surprise if they have previously had these benefits.
“Taking these factors into account, it is not surprising that the draft legislation has been amended to prevent any potential abuse or misunderstanding and we welcome the changes. However, it should be borne in mind that the vast majority of personal service companies are run compliantly by individuals who make an informed choice to operate in this way.”
FCSA Research revealed that only 35% of UK hirers are fully conversant with the pending Travel & Subsistence (T&S) regulations with 38% of operational teams claiming to be fully up to speed compared to only 14% of HR respondents.
The research, conducted over the last two months by a collaboration of trade and professional bodies, the FCSA, CIPD, CBI and REC, sought to gauge the levels of awareness of the new tax legislation amongst end hirers, how they would respond and how the new rules would impact their hiring decisions when the new regulations come into effect in April. 470 hirers responded to the research across all sectors and disciplines.
Other key findings revealed that:
92% of organisations that hire freelancers and contractors will not be compensating all workers for their financial loss that changes to Travel & Subsistence (T&S) tax offset rules will present. This comes despite the Government suggesting that it “expects business to pay a wage sufficient to attract workers without any special tax subsidy being necessary”.
79%+ of end hirers who plan to keep rates static believe that their decision will have a negative impact on workforce flexibility (79%), competitiveness (80%) and their ability to attract and retain staff (86%).
In essence, the research revealed that in 95% of hirers engaging umbrella employees and PSCs, all or some of these individuals will be impacted. For the 71% of end-hirers who have already determined which roles will be subject to supervision, direction or control (SDC), thereby removing the potential for those workers to offset T&S expenses against tax, more than a quarter (27%) know that this will be the case and three in ten (29%) believe it will be the case for most people. Just 5% think that all workers fall outside SDC, leaving 39% truly determining the nature of the working relationship on a case-by-case basis
Being a step away from the legislation to take effect, one third of respondents are yet to determine what they will do for their umbrella and PSC workers. Those who understand what the T&S rules mean believe that the legislation will reduce their organisations’ flexibility significantly and will also reduce the quality of available contractors to call upon. Alarmingly 14% of hirers said that they will use fewer umbrella employees/PSCs as a result of the changes.
Commenting on the findings, Julia Kermode, CEO of The Freelancer & Contractor Services Association, the UK’s independent trade association whose members provide professional support services to freelancers and contractors said: “It is clear that, whilst the UK government believes in the principle of hirers paying ‘a wage sufficient to attract workers without any special tax subsidy being necessary’, UK plc does not currently have the bandwidth to absorb the significant cost implications of this legislative ruling.
“As individuals will be impacted in 95% of UK workplaces that use umbrella employees and/or PSCs, the findings of this research should give employers and government alike notable cause for concern.