Contractor industry body moves to mitigate impact of treasury consultation

Following the announcement by the Treasury of a consultation on contractor’s expenses, major players in the sector have responded with an impassioned plea for the industry to pull together in the face of potential major threat.

Further analysis of the Treasury’s consultation document reveals that the government’s solutions to the issues relating to contractor’s expenses could tear the sector apart and possibly decimate the existing compliant contractor umbrella companies with tens of thousands of contractor employees.

Unified Response

Recruitment affairs specialist Lawspeed, in partnership with the Association of Employment Management Companies (AEMC), have announced that they will be holding an open meeting on 31st July 2008 at 10:00 at The Naval Club, 38 Hill Street, Mayfair, London W1J 5NS.

Jonathan Hughes, AEMC board member and managing director of Atlantic Umbrella Company Ltd., is keen for a wide spectrum of industry representatives to attend: “We are promoting the meeting as an open forum for umbrella companies and agencies that operate overarching employment contracts, as well as accountants who work with contractors.”

According to Hughes, the AEMC has been aware of the Treasury’s concerns in relation to expenses and has since its inception argued in favour of greater compliance: “We welcome this consultation to the extent that there is a focus on compliance. The AEMC was formed specifically to represent and coordinate efforts in situations like this.”

Is the Treasury missing a trick?

Should the government legislate and disallow travel expenses for contractors who work through umbrella companies, contractors will be faced with reduced income whilst their costs increase.

As Hughes points out, this can only have one outcome: “Contractors will abandon umbrella companies and start working through personal service companies. The Treasury should not forget that umbrella companies are huge tax gatherers for HMRC, including income tax, National Insurance Contributions (NICs) and VAT.”

The concern is that HMRC would simply not have the resources to police tens of thousands of new personal services companies and the industry would regress by a decade.

Inflationary pressure

Another major concern voiced by Hughes was the impact cutting contractors’ travel allowances would have on rates: “We have a contractor employee who actually works for HMRC. He lives in Kent and works in Telford, making the journey early on a Monday and staying in a local hotel. If his expenses allowances were removed, he would need to be paid £200 a day extra to cover the costs.”

With inflationary pay demands by workers posing a real threat to the UK’s macroeconomic stability, demands for increased daily rates by tens of thousands of contractors could have a major impact.

Independent representation

The meeting proposed by the AEMC and Lawspeed in London on 31st July presents an ideal opportunity for all players in the sector to become part of the representation group to the Treasury. But will it cover all viewpoints?

Hughes says: “The AEMC is an independent organisation, which truly represents a large element of the contracting sector and has extremely high audit requirements for membership.

“We want to keep the UK’s flexible workforce working and if the government chooses to increase regulation on an already overburdened sector of the economy, this could result in significant damage to the UK’s ability to weather the current economic downturn.”