Travel and Subsistence allowance changes in March 2016 Budget

Last week saw George Osborne deliver his latest budget to the country.  Contained within the budget was the formal announcement about the change to contract and freelance workers’ pay structures that he outlined in his previous budget.

The decision to implement the new legislation has a massive impact on the contract recruitment sector. We’ve spoken to Julia Kermode from the Freelancer & Contractor Services Association (FCSA) to comment on the new changes and she had the following to say….

‘Despite tenacious campaigning, the cuts to tax relief on Travel & Subsistence expenses for contractors will go ahead in just a few weeks.  From April, the majority of freelancers and contractors will no longer be able to claim tax relief on their travel and subsistence expenses.  An estimated 750,000 workers could be affected and may see their income decrease by around £3,500 per annum as a result.

The only way that contractors can continue to receive tax relief on their expenses is for the supply chain to prove that they are not subject to supervision, direction or control (SDC) in the way they conduct their work.  However large numbers of contractors are subject to supervision, direction or control and these workers will lose their tax relief as a result.

It seems likely that there will be further skills shortages as fewer contractors will be willing to travel for assignments if they are not being properly compensated for doing so.  There may be requests for increased assignment rates to take account of contractors’ reduced income, which in turn will put additional pressure on margins throughout the supply chain.

Recent research undertaken by FCSA, CBI, CIPD and REC revealed that only 35% of UK hirers are fully conversant with the pending T&S reform, and of those who are aware, 92% are not planning to compensate workers for their financial loss incurred. The few end-hirers that are considering increasing rates for their temporary workforce expect there to be negative implications of doing so due to the resulting financial pressure; such as reducing the total number of workers they can use, or being less competitive in their ability to react to changes in demand.

Many Government policies announced in the budget are heavily reliant on contractors, and will be affected – HS3, Crossrail, M62 widening, 18-mile trans-Pennine tunnel will all suffer.  In January 2016, the National Audit Office published a report examining measures to improve the success of major government projects.  They concluded that high levels of staff turnover and skills shortages mean that a third of government projects are expected to miss their delivery target.  And despite this, T&S reform will be implemented which will only exacerbate the situation.’

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