Some 45,000 freelancers may be driven out of business by restrictions on tax relief for work travel, according to research conducted by IPSE.
The body for the self-employed and independent professionals surveyed 2,358 business founders, to find out how they would be impacted if unable to claim tax relief for travel and subsistence expenses. Almost one in five freelancers using limited companies would have to stop taking contracts altogether, which would work out at around 45,315 businesses affected.
According to the government’s estimate for the number for Personal Service Companies operating in the UK is 265,000.
Currently, limited company directors, including independent professionals working through their own limited company are able to claim tax relief on travel and subsistence expenses, which are wholly and exclusively business related and considered “reasonable”.
During George Osborne’s Summer Budget, he outlined proposals to restrict tax relief on travel and subsistence expenses for workers who are engaged through an intermediary.
The vast majority (76 per cent) of respondents to IPSE’s questionnaire feared they wouldn’t be able to take on any contracts which weren’t near to their home or office – feeling their work prospects would be severely hampered by relief restrictions.
This would put those which operate through limited companies – often at the insistence of their clients, as IPSE pointed out – at a significant disadvantage to larger competitors that can continue to claim tax relief.
Chris Bryce, CEO of IPSE, said: “IPSE is deeply concerned about the damage removing tax relief on travel and subsistence from limited companies could cause the self-employed community.”
“We’ve been flooded with emails from freelancers worried they’ll have to fold their business because of these changes,” he added, urging the government to rethink “this harmful proposal”.
Restrictions on tax relief for work travel could also have a negative knock-on effect on companies hiring freelancers. IPSE warned that the changes may then result in higher prices for businesses utilising freelance services. Some 85 per cent of freelancers confirmed they would be forced to charge more for their services as a result of the imposed restrictions, which in turn may discourage firms from using freelancers “removing crucial flexibility and expertise from the UK’s economy”.
Bryce added: “Mobility is key to creating a thriving freelance economy and we’re worried that people who run their own companies will suddenly find themselves unable to take on jobs that aren’t near their home. It makes one person businesses less able to compete with big competitors.”
He went on to warn that “ultimately if businesses are closing, it will have the opposite effect of reducing HMRC’s revenue creating a lose-lose situation”.
Limiting the tax relief would mean freelancers using limited companies would be less likely to legitimately offset costs incurred when travelling to and from their clients’ premises. For those where said premises involve significant travel this would also extend to costs of temporary accommodation and food.
The government has been consulting on the changes, with IPSE pressing for a rethink to enable freelancers to continue receiving the assistance.
Sign up to our newsletter to get the latest from Business Advice.