Contractor tax relief ban 'to sink 45,000 PSCs'

Tens of thousands of personal service company owners may be forced to stop trading if the proposed ban on tax relief for the supervised, directed or controlled goes ahead, warns IPSE.

In fact, as many as 45,000 PSC contractors will have to pull the plug if tax deductions on travel and subsistence (T&S) expenses are removed in April, the contractor body estimates.

Based on a poll of its members, the estimate is one of a series the Association of Independent Professionals and the Self-Employed has made to highlight the “damage” the ban will inflict.

On top of the one in five who expect it will kill their business, 76% of the contractors fear that the ban will render contracts not near their home (or office) financially prohibitive.

So businesses which operate via limited companies – “often at the insistence of their clients” – will be at a clear disadvantage to larger rivals whose tax relief will continue, IPSE said. 

“We've been flooded with emails from freelancers worried they'll have to fold their business because of these changes,” it added. “Government must rethink this harmful proposal.”

Another potential impact of the ban could be higher prices for companies hiring contractors, as 85% of respondents said that, post-April, they would have to charge more to compensate.

“Rising prices will discourage businesses from using freelancers, removing crucial flexibility and expertise from the UK's economy,” the association warned.

“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.”

Under the ban, PSCs will no longer be able to legitimately offset costs incurred when travelling to and from their clients' premises, pointed out IPSE’s chief executive Chris Bryce.

In addition, where the client’s premises are a long way from the worker’s own base, the costs of temporary accommodation and food for the worker would also no longer be deductible.

“One-person businesses [will be] less able to compete with big competitors,” he said. “Ultimately if businesses are closing, it will have the opposite effect of reducing HMRC's revenue, creating a lose-lose situation.”