The Dark Cloud Over The Freelance Sector

The Dark Cloud Over The Freelance Sector

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Why the Government must listen to Matt and think again...

Matt Searle is one of the growing band of independent professionals that have helped this country out of recession. Who told him? The Government told him.

Matt works in the northern powerhouse, a 21st-century hub for skilled modern working. Who told him? The Government told him.

Matt is a key part of the country’s long-term economic plan. Who told him? The Government told him.

So is Matt, a highly respected award-winning IT specialist, really valued by the Government?

Well, that’s what Matt and more than 4.5 million other professional contractors thought until the summer Budget bombshell that revealed the Government was minded to change tax breaks on travel and subsistence for freelancers and contractors who run their businesses through limited companies.

Matt and the growing army of freelancers travel the length and breadth of the UK and overseas, visiting clients’ sites, taking their skills and expertise wherever and whenever it is needed.

Travel, by rail, road, train or plane, is expensive, very expensive. Finding accommodation in city centres doesn’t come cheap.

If the Government goes ahead with these short-sighted plans and legitimate travel and subsistence expenses cease to be tax deductible, it will hit Matt, who recently joined IPSE’s Board of Directors, and thousands of others in the pocket.

“It could cost me up to £28,000 or around 30% of my turnover in the years where I work away from home a lot. With a typical client, I am away from home Monday to Friday either staying in a hotel where rates normally start at £100 a night or renting a room in a shared house at around £800 a month. If I am heading to London, the flight is £250 or by train £200.

“The amount I claim back for travel and subsistence varies year by year. In the years where I’ve been working primarily from home, the most was £3,200, or 4% of my turnover, and the least £2,000 – just 1.5% of turnover.”

But, for the married father of two daughters from Burnley it’s a case of, have skill will travel. From implementing specialised Oracle services across more than 25 countries around the world, to advising the Metropolitan Police, the Home Office, the Scottish Executive, or helping to guide Marconi or IBM, Matt is a man that clocks up the miles.

“In the years where I have been away from home, the lowest tax rebate was £16,000, around 19% of turnover, and the highest £28,000 – a substantial 29.5% of my turnover that year.

“If I’m working away from home I leave around 6am on a Monday morning and return home late on a Friday. There have been plenty of tears over the years explaining that to my daughters. But the reality is, we freelancers have to be available to travel to offices in London, Liverpool, Leith or even Lisbon. This tax threat is like a dark cloud over the entire sector.”

Matt is not alone in worrying about the storm clouds that threaten freelancers. A recent IPSE poll of 2,358 members found that 75% of members who responded would only be able to take on contracts close to home and 17% of freelancers would have to stop taking on contracts altogether.

Has the Government really thought this through? IPSE hopes not and will present the results of the survey to the Government and HMRC.

There will be some who will say to Matt and the growing army of contractors: “Just charge more; raise your rates and balance the books.” Matt is quick to dismiss this as a meaningful solution, saying:

“If I increase my rates, then clients simply will not pay for my services. It is a really competitive marketplace and the clients will find cheaper resources – whether that is because they are round the corner from their offices, offshore or are brought over on an ICT visa. To come close to compensating for the additional expense, I would have to add such a high premium to my fees that no agency would waste the client’s time by putting me forward for a role.

The current proposals have the potential to destroy my business while at the same time handing a gift to large consultancies.

“I am already charging a rate near the peak that the market will sustain – there is no movement here, clients will not pay anything more and I cannot afford to take work away from home if I cannot claim the relief on travel and subsistence.”

By nature, Matt tries to be an optimist; he’s a highly articulate professional, so highly articulate that he has won several awards including Best UK Speaker 2013, UK Oracle User Group. But when Matt looks ahead at the possibility of the Government introducing this draconian measure, he is lost for words for a few minutes as he contemplates the grim reality of the damage this could do to him and to the sector he loves.

“The current proposals have the potential to destroy my business while at the same time handing a gift to large consultancies. In the 17 years that I have been a consultant or freelancer, I have only had two clients where I have not been required to stay away from home or incur significant travel and subsistence costs.

“I have a rare and valuable skillset, but the reality is that clients who are willing and able to pay for my skills are also rare. I have no option but to travel long distances to stay near to those clients, so if the changes are implemented I cannot see a way that my company can operate in the future.

“The harsh reality is that as soon as my company has to take work which incurs significant costs, I suspect that I will close the company and have to look for permanent employment which would result in a significant reduction in the amount of tax contributed to the Exchequer.”

The Prime Minister told IPSE Magazine just weeks before the general election: “The self-employed are a key part of our long-term economic plan for the country.”

We hope the PM reminds his Chancellor and HMRC about that fact. We also hope that the PM, the Chancellor and HMRC all appreciate that talented individuals such as Matt Searle, and thousands like him, have helped this country out of the worst economic recession in the last 100 years. And we hope that they will dump this plan.

Talk about killing the goose that laid the golden egg; if the Government goes ahead with this plan, it’ll strangle the bloody goose to death!

 

Article by Jim Cassidy