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Tax grab threatens contractors with 20% pay cut and could cost UK employers 7bn

The Government was urged to think again after being accused of "going to war" on the most vulnerable by slashing contractors' take home pay.

HMRC says plans to largely scrap travel expenses for Britain's most flexible labour force will net the Chancellor just &pound265m but UK employers face a &pound7bn bill, warned trade association Prism.

Prism is a not-for-profit trade body whose members provide payroll, accountancy, umbrella and other services to contractors.

It believes the proposals threaten to hamper British industry and cripple public bodies as employers face having to make up the shortfall to stop workers walking out.

From April 2016 HMRC plans to stop contractors claiming travel and subsistence expenses from home to temporary workplaces if anyone they work with has the right to & lsquo;supervise, direct or control’ the way they work. Prism believes this goes too far and could include all workers.

Prism CEO Crawford Temple said: "The taxman is going to war on temporary workers and contractors. These are people for whom there is no normal commute as they move around different workplaces, sometimes working for dozens of companies a year over a wide area.

“These workers have always been able to rely on claiming travel expenses from home to temporary workplaces and that has been one of the few benefits of being a contractor.

“We estimate a 20 per cent shortfall in take-home pay if HMRC brings these changes in. The burden will be borne by Britain’s employers and the lowest paid as a gap in pay emerges overnight. The most flexible part of our workforce will become the worst off with the fewer benefits and the least protection.”

HMRC admits in discussion documents that the drop in take home pay could make it harder for the Government to hit its child poverty targets, adding: “This measure may affect some families with low income and family member’s ability to play a full role in family life.” 

HMRC’s complex proposals will have bizarre consequences which will mean permanent employees getting travel expenses while contractors working alongside them do not, Prism said.

Prism says research among members suggests employers will need to spend 25 per cent more on contractors to maintain rates of take-home pay. Based on average UK earnings, it estimates that would cost employers &pound6.9billion.

The effect of the changes on Government departments could be crippling. 

The NHS has already been criticised for the amount it spends on agency workers. 

In May it emerged NHS spending on temporary workers had shot up &pound800m to &pound3.3bn in the last financial year and hundreds of thousands of them could be contractors. 

An unintended consequences will be that contractors doing special projects a long way from home will have to turn work down altogether, Prism says.

Mr Temple added: “This workforce also services some of the most important public projects from bridges to power stations to understaffed hospitals. Many professional will be unable to accept work if it’s a long way away.

“These changes are cynical because they are totally unfair to the contractor who has fewer employee benefits, no job security, no sick  or holiday pay and no company pension. Rules to tackles workers who do not deserve travel expenses already exist but HMRC find it easier to penalise everyone rather than go to the trouble of enforcing them.

“UK Plc overall will become less competitive, struggling workers will pay more tax and employers will face higher costs at a time when budgets are under severe pressure.

“We are not defending people who behave like employees but disguise themselves as contractors. Travel expenses for itinerant workers are a huge and unpredictable expense. Ministers are reaching into the pockets of those with the least job security and cutting the amount they take home by 20 per cent overnight. It's an utter shambles at a time when the most flexible section of our labour force are key to the economic recovery. 

"When you risk disposable incomes or burdening industry with colossal costs you put that recovery at risk.”

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