'Hirers won't compensate contractors for T&S losses'

The government’s stated expectation that hirers will pay contractors a rate “sufficient” to still attract them once their tax relief on expenses is curbed appears to be a major miscalculation.

In fact, a poll of 470 outfits shows that 92% of those hiring contractors will refuse to compensate all such workers from April, when legislation restricts their Travel and Subsistence (T&S) relief.

The finding discredits the government’s view that it “expects business to pay a wage sufficient to attract workers without any special tax subsidy,” once the current subsidy is curbed.

Made in the official reply to the consultation on T&S for Supervised, Directed or Controlled (SDC) workers, the expectation was outlined as “part of the government’s plan to move to a high wage economy”.

But the fact that nine in 10 engagers do not appear aligned with the government’s plan is “cause for concern,” says Julia Kermode of the Freelancer & Contractor Services Association, which ran the poll.

She said: “The government believes in the principle of hirers paying ‘a wage sufficient to attract workers without any special tax subsidy…,’ [but] UK plc does not currently have the bandwidth to absorb the significant cost implications”.

Previous research by the FCSA calculates those implications to be in the region of £3,500 in additional costs for each of those to be affected – some 775,000 workers.

And although an estimated £505million will be raised for the exchequer as a result, the T&S legislation has been assessed by the officials behind this estimate to exert only a “negligible impact.”  

This is despite their impact assessment listing three burdens – a need for engagers to identify ‘SDC’ workers; a need for them to agree an information-flow process and a “rise in the direct cost of hiring”.

Yet the FCSA poll shows that almost 80% of engagers who plan to keep pay rates for contractors static (so not increase them to compensate for potential T&S losses), fear for ‘workforce flexibility.’

An even bigger proportion (86%) fear the same refusal to hike rates will hurt their ability to attract and retain contractors. Others say they worry for their outfit’s overall competitiveness.

But these numerous concerns are not compelling clients into action. FCSA found that one third of clients have not yet determined ‘what they will do’ for their contractors, despite the legislation being less than two months away.    

Worse still for individuals due to be contract-seeking from April, some 14% of engagers told the pollster that, to reduce their exposure to the T&S legislation, they will simply hire “fewer” contractors.

Ms Kermode described the response as alarming. She said: “We will present a report of our findings to David Gauke MP, Financial Secretary to the Treasury, the minister responsible for the reforms.”

Editor’s Note: Related Reading –

Taxman preparing SDC guidance

Why it’s all change for umbrellas from April

Contractors, petition HMRC to keep T&S relief

Mar 01, 2016