Ed Lester, CEO of the Student Loans Company, was reported to have his £180,000 plus salary paid through his own personal service company as part of a move to avoid tax and national insurance payments. The Government through Chief Secretary of the Treasury, Danny Alexander, tried to quell the upset by announcing in Parliament that this had now stopped with an immediate effect and that their would be an urgent review into this and any similar arrangements within the Civil Service. (See: Review into Civil Servants' service companies - Shout99, Feb 2012).
Much of the debate has focused on the tax avoidance aspect and whether this was an appropriate vehicle for public funds to be paid. However, many in the freelancing sector, including contributors to Shout99, have commented on the seeming double standards that HMRC seemed to turn a blind eye to possible IR35 issues, while pursuing freelancers whop operated their businesses in a similar way to Mr Lester.
Recruitment law specialists, Lawspeed, saw this as a potential catalyst to bring the wider issues of operating through so-called personal service companies into the spotlight.
Lawspeed said: "The revelation that Ed Lester, Chief Executive of the Student Loans Company, was having his £182,000 salary paid through his own personal service company as part of a tax avoidance scheme has brought such arrangements into the public eye.
"Whilst the use of such companies is common knowledge to those in the recruitment industry, the exposé and the resultant announcement by Danny Alexander, Chief Secretary to the Treasury, that Mr Lester will be paid net of PAYE tax and NICs in the future, has led some commentators to question the very legitimacy of working through a personal service company (PSC). This has been exacerbated by Alexander’s further order of a review of the tax affairs of all top civil servants.
"Use of a PSC can be a very effective way of ensuring lower income tax payments and significantly reduced NICs, provided that the way it is structured works within the strictly drafted tax legislation, notably the Income Tax Earnings and Pensions Act 2003 which contains not only IR35 legislation but the Managed Service Company legislation. Furthermore there have been suggestions that the onset of the AWR has brought about an increase in the use of PSCs as they provide a way for individuals to operate outside of scope of the regulations.
"Whether the story will bring about a wholesale examination of the use of company structures generally, or will expedite the Treasury’s considerations on IR35, is yet to emerge. Press coverage seems to imply that it is Mr Lester’s status as a public servant which is at the root of the outcry rather than the structure itself. However any further revelations of this nature within other Government departments, perhaps even HMRC itself (especially if the review is extended to include consultants and other advisers) is likely to keep the issue on the front pages and potentially bring into question the fundamental bases for personal taxation in the UK."
Accountancy firm, Brookson, saw the dangers of all individuals operating through a limited company being associated with 'tax avoidance' issues as a result of this case and it being used to undermine the value of the flexible workforce which operates in this way.
Martin Hesketh, managing director of Brookson, said: "The recent media coverage of the Ed Lester case is unfortunate in that I believe it is unrepresentative of the value of the flexible workforce. The focus on this case has shifted the debate into the realms of tax avoidance, which is not the motivation for the majority of the flexible workforce. While it’s not appropriate for me to comment on the rights or wrongs of this particular case, I am disappointed that much of the debate fails to recognise the contribution played by this working population to the economy and it is symptomatic of the lack of genuine understanding in Government to the different types of the various types of workers within the self-employed population; from lower paid temps to highly paid, highly skilled professionals.
“We need a tax system to support and encourage, in the appropriate fashion, all elements of this workforce, offering protection at the lower end but recognising the risks taken and skills provided by specialists to end-users for the benefit of organisations and the UK economy as a whole.
“As I have stated, one size cannot fit all for this diversely rich working population and decision makers must understand this.”
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Susie Hughes © Shout99 2012