Recent research from Pulse Accounting, providers of online accounting services to contractors and freelancers, has found that the majority (57 per cent) of contractors surveyed were unaware of changes to legislation which could be coming into force in April 2016.
These changes would restrict travel and subsistence relief for workers employed through intermediaries, such as umbrella companies and personal service companies. HM Revenue and Customs (HMRC) is currently analysing feedback submitted to its consultation on Employment Intermediaries and Tax Relief for Travel and Subsistence.
Chris Futcher, CEO of Pulse Accounting, comments: “Many contractors could be in for a nasty shock should HMRC bring in their proposed changes. These proposals remove tax relief on the cost of home-to-work travel for workers employed through an employment intermediary, such as an umbrella company or personal service company (PSC). This would mean it’s no longer tax efficient for many contractors to be paid via an umbrella company and those using PSCs would also see their pay reduce.
“Last year self-employment was found to be higher than at any point over the last 40 years, with 4.6m people being self-employed for their main job. HMRC doesn’t seem to appreciate that contractors are a hugely important part of the UK’s workforce and the majority who work this way are not trying to game the system. Many provide businesses with specialist skills and allow access to these skills in a flexible way, helping those businesses to grow,” adds Chris.
Should the changes come into effect in April 2016, almost one in five (18 per cent) of survey respondents said they would consider becoming a permanent employee. But the majority are committed to the contractor life, with 42 per cent saying they would not go permanent. The remaining 40 per cent don’t know if they would continue contracting or look for a permanent role.
HMRC is also considering making employers responsible for contractors’ tax bills to make sure they’re not operating as disguised employees. And the majority of contractors surveyed (58 per cent) believe that, should this happen, then it will reduce the number of contractors used by businesses.
Chris continues: “If employers are made responsible for their contractors’ tax bills then they are really going to think twice before getting someone in for a short-term job. This is likely to slow or halt business growth, which is really not the message government should be giving UK businesses.
“Contractors should talk to their accountant or intermediate employer about how they could be affected by these changes so they can plan accordingly.”