Is HMRC listening?

thQBPXG6MNOur CEO, Julia Kermode, shares her blog post published on linkedin:

Last week I shared a platform with HMRC representatives and IPSE to discuss, debate and share our combined thoughts on the potential impact of the pending Intermediaries Travel & Subsistence legislation that is under discussion to an audience of recruiters.  Andy Chamberlain from IPSE and I aired our concerns and I hope HMRC listened.

HMRC believes that the Chancellor is missing out on £265m and believes that contractors enjoy unfair tax advantages under the current system.  This figure is wholly inaccurate as it includes both tax and NICs, however NIC relief has already been removed by the Finance Act 2015 earlier this year.  So not only is the figure optimistic at best, it is incorrect and any savings directly related to this policy would be much less than suggested.

It is fundamentally wrong to develop and propose legislation where the proposals are not underpinned by robust evidence and penalise a group of workers which are so valued by UK plc.  By reducing the income of hardworking contractors, the proposals will unlevel the playing field and disadvantage the very workforce that has enabled economic recovery to date.

FCSA research shows that almost 50% of contractors don’t claim travel and subsistence that they are due anyway.  This dispels one of the arguments in the consultation, that expenses are systemically exploited.  This is simply untrue, and in fact expenses are only claimed as necessary due to cost and distances travelled, in order to make an assignment viable.

What the Government does not seem to recognise is that the very nature of working as a contractor means filling a series of short-term, non-permanent roles at a variety of temporary workplaces.  It is fundamentally different to the “ordinary commute” that they wish to target.

The nature of travelling to a series of temporary workplaces does not allow the luxury of working close to home and incurs extra costs that permanent employees do not need to bear.  For example, permanent employees will often buy season tickets (or have a season ticket loan as a benefit of employment) to minimise the cost of their “ordinary commute”, whereas contractors go to any number of locations for work and therefore unable to access the same savings.

HMRC proposals are based around the application of Supervision, Direction or Control (SDC) to establish if a worker is eligible for T&S tax relief – but I simply cannot see how this reflects a temporary workplace and it has no relation on what a temporary worker does.  All workers will be assumed to be under some form of SDC unless it can be demonstrated otherwise.  So, the default position is no tax relief, and we will have to prove a negative in order to gain the relief.

I would argue that very rarely will any type of contracted work be done without some sort of SDC and we do not see how this will allow for legitimate tax relief on T&S expenses to be claimed.  Many of our members have expressed confusion and concern over these conditions which will only serve to damage the flexibility of the worker even further.

Under the new legislation, there is no question that we will see a skills shortage as fewer workers will be willing to travel for assignments.  We are in a contractor driven marketplace, and a skills shortage will affect businesses ability to be agile.  Locations outside of London will be hardest hit, in fact any areas where the local population may not have the niche skills that contractors offer.  The skills shortage will affect Government policy – the Northern Powerhouse could suffer along with key infrastructure projects which rely traditionally on contractors.  The nuclear industry will miss out.  Teachers, pharmacists and engineers will miss out.  I could go on.

Just this month the ONS published figures comparing UK productivity with the international scene in 2014; output per hour and per worker fell 20 percentage points below the average of other major G7 economies.  This is a significant concern for businesses and workers alike, as well as a political issue with the Chancellor back in July pledging to increase UKs productivity to enhance our international competitiveness.

The flexible workforce is key to the UK’s growth and productivity and it needs to be nurtured not punished and we, at the FCSA, believe that the proposed approach by HMRC to specifically target employment intermediaries on claiming tax relief is disproportionate, based on a false understanding of the sector and will have a significant impact on the flexible workforce in the UK.

Government back in 2014 embarked on a broader review of T&S expenses in general, and this work is ongoing with HM Treasury issuing a discussion document just last week.  I cannot understand why there is a need to consider intermediaries T&S ahead of the whole review so I urge Government to genuinely show “joined up thinking” and delay any changes to occur in tandem with this wider review.  That would be in keeping with the Government’s desire for fairness and a level playing field and in this way, all sectors and labour markets affected would be treated equally.

FCSA stands for compliance and ethical behaviour and we do not condone any abuse or exploitation but the proposals do not recognise the importance of the flexible workforce.  The proposed legislation will:

– reduce income for workers
– reduce flexibility
– un-level the playing field and put contractors at a disadvantage
– create a skills shortage
– damage UK productivity and the UK economy

So I would urge the Chancellor to think again.