New UK tax laws could put 45,000 freelancers out of business

Up to 45,000 freelancers in the UK could be driven out of business by restrictions on tax relief for work travel. That's according to new research conducted by IPSE, the Association of Independent Professionals and the Self-Employed.

IPSE's findings show that tens of thousands of freelancers who operate their businesses through limited companies may be forced to stop taking on contracts if the Government pushes ahead with proposed limitations to tax relief.

Under the proposed limitations, freelancers using limited companies would no longer be able to offset costs incurred when travelling to and from clients' premises, or costs of temporary accommodation and food where the premises are a long way from their own base.

Dangerous repercussions

The research paints a worrying future for the creative landscape. According to the IPSE, if tax relief on travel is restricted:

• Almost one in five (17 per cent) freelancers using limited companies would have to stop taking contracts altogether
• Three quarters (76 per cent) fear they won't be able to take on contracts that aren't near to their home or office
• 85 per cent of freelancers will be forced to charge more, which could discourage clients from using freelancers
• Larger competitors that can continue to claim tax relief gain a clear disadvantage over limited companies

What does it all mean?

In a nutshell: if one-man design companies can't compete with bigger competitors, they'll be forced to close – reducing HMRC's revenue and damaging the UK's world-leading creative services.

"Illustrators and designers will have higher, non recoupable expenses, which is concerning given rising living costs and stagnating wages," warns illustrator and Kith & Kin founder Ciara Phelan.

"Clients will have to absorb the additional expense into their budget, which will lead them to more heavily consider a freelancer’s geographical location and leave the UK less able to compete in the global market."

Freelance illustrator and author of Champagne and Wax Crayons Ben Tallon finds that the proposed changes to travel expenses tax relief are more than a little worrying.

"It stinks of yet more cuts in the wrong areas," says Tallon. "As a freelancer, I actively seek the cheapest, off-peak, advance ticket on my clients' behalf and cover only my basic needs, even taking a packed lunch."

"I've worked for corporations that flat out refuse to even consider saving a couple of hundred pounds in this way, throwing money away on extortionate rail fares for me instead."

"Yet the individuals are facing damaging new restrictions? We all know that plan will serve only big businesses who don't need to worry about such expenses."

Damaging new restrictions

Multi-awarded designer and art director Craig Ward agrees. "It's indicative of the duality of what the governments say is important – entrepreneurialism, small businesses etc – and the lengths they seem to go to make being either of those things almost impossible."

"It's really much the same in the US right now unfortunately. Here, you can add in the cost of health insurance, which makes things even more tricky."

Moving to the country

Ward founded full-service creative studio Fatale last year. He thinks that ultimately designers and illustrators are likely to stay freelance – he can't imagine a job that would tempt him back into full-time work – but limited companies will have to adapt quickly to stay afloat.

"This will just drive more people out into the sticks," he predicts, "where their overheads are lower. It's pretty depressing stuff."

The stakes are higher than just an individual level too, adds Tallon: "I really hope the Government starts to see the value us freelancers bring to not just the economy, but more importantly, society and a world-leading creative sector."

"Besides, where will their infallible corporations find the real innovators when we've all been neutered?"

What do you think? Will restrictions on tax relief for work travel destroy freelance designers and illustrators who operate as limited-companies, and neuter the creative industries? Let us know in the comments below...

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