As Chancellor George Osborne prepares to rubber stamp a £16.6bn cash grab from 1.6 million contractors across the UK, a leading accountancy firm has called for an urgent rethink warning the move will hit British industry hardest.
The managing director of Danbro, Damian Broughton, says the Government is attacking the lifeblood of the UK economy by changing tax rules for skilled freelancers and warns “the Chancellor is sleepwalking into a catastrophe.
The Government is planning to scrap tax relief on travel expenses for Britain’s army of contractors in a move that will cost each freelancer an average of £200 a week – totalling £16.6bn a year for the UK’s 1.6m contractors.
It will raise just £265m for the Treasury, but Danbro warns employers will have to pick up an estimated £7bn shortfall for contractors if they want to retain the freelance expertise they need to grow their business.
A survey conducted by Danbro found just 25 per cent of freelancers would take on a contract without tax relief expenses from April. Danbro estimates those who do will see average pay slashed by as much as 20 per cent.
Critically, the move could have a huge impact on the UK’s flexible workforce resulting in many industries struggling to get the skills they need to grow and prosper.
The survey by Danbro, which provides financial and accountancy support for 7,000 contractors across the UK, found most freelance workers will not be able to continue without the tax relief and will either seek work overseas, retire or, in some cases, workers claim they will resort to benefits.
Mr Broughton says: “The Government is quite rightly aiming to crackdown on tax avoidance but this move is at best, misguided, and at worst, completely counter-productive for the UK economy.
“Contractors are a vital resource of skills for thousands of UK businesses and waging war on this sector for a £265m return to the taxman is shortsighted.
“Chancellor Osborne must revisit these proposals and look again at the existing rules and ensure they are being enforced rather than just taking a new approach that penalises everybody. This new system is unfair, will heavily impact UK industry and attacks the modern British way of working.”
The research into more than 3,000 contractors by Danbro showed more than 90 per cent currently claim travel and subsistence expenses and almost 70 per cent of freelancers have a contract of a year or less.
Under the new rules HMRC plans to stop contractors claiming travel and subsistence expenses if anyone they work with has the right to 'supervise, direct or control' the way they work. The rules will come into force in April of next year if Mr Osborne sticks with the plan in the Autumn Statement on November 25.
Mr Broughton adds: “We do need rules in place to prevent people from abusing the system. These rules do exist and are suitable, but they are not being enforced.
“Travel expenses for genuine temporary workers are a major issue as they are a huge and unpredictable expense. The Government is putting families and workers at risk by slashing their income while also burdening industry with huge costs and a lack of available skills.
“This is putting the UK’s recovery at risk and I fear the Chancellor is sleepwalking into a potential catastrophe simply because he’s seen a quick way to grab some extra tax.”
