A “stealth tax” aimed at the UK’s army of contractors will hit British industry and stall economic growth says national accountancy firm Danbro, despite claims from Chancellor George Osborne that his Autumn Statement “delivers what businesses need”.
Despite protests and appeals for a further review, the Chancellor has pushed ahead with plans to scrap tax relief on travel and subsistence expenses for the nation’s 1.6 million freelance workers.
Danbro provides accountancy and professional employment services to more than 7,000 contractors around the UK and says the decision, which comes into effect from April next year, could cost contractors £16.6bn a year in lost expenses.
Critically, contractors provide a lifeline of skills to thousands of businesses around the UK and the move could cost British industry £7bn as it is forced to make up the shortfall in pay.
Managing director of Danbro, Damian Broughton, says: “The Chancellor started by saying this was a budget that would deliver what businesses need – competitive taxes. The reality is that he’s raided the pockets of contractors and businesses alike with a cynical stealth tax.
“This move could have a potentially devastating effect on some businesses that rely on freelance workers to provide the skills they need. If they want contractors to come to their site they will have to pay much more – many won’t have the capacity to do that.
“The Chancellor also heralded the growth we’ve seen in the UK economy over recent years. That growth was fuelled by our flexible workforce and he’s now putting the brakes on this vital sector by stopping them from travelling to where they are needed.”
The decision to restrict tax relief for travel and subsistence expenses for workers engaged through an employment intermediary, such as an umbrella company or a personal service company will raise just £265m for the Treasury.
However, research by Danbro suggests the move could cost each freelancer an average of £200 a week – totalling £16.6bn a year for the UK’s 1.6m contractors.
A survey conducted by the firm also found just 25 per cent of freelancers would take on a contract without tax relief on expenses from April next year.
Mr Broughton adds: “While the Autumn Statement brought good news for contractors in the shape of numerous infrastructure and building projects, this shortsighted tax grab will hit the temporary worker sector hard.
“The Chancellor repeatedly claimed ‘we are the builders’, but without a strong flexible workforce we won’t be able to build anything.”
Danbro will produce a number of resources and guides to help flexible workers adapt to the new rules when full details are expected to be published on December 9.