The Government announced a review into the practice after it emerged that CEO of Students Loans Corporation, Ed Lester used this arrangement. Since then it has emerged that more than 25 senior people in the Department of Health are also being remunerated in this way.
Contractor trade group, the PCG called on the Government, civil servants and the media to avoid introducing hysteria to the debate surrounding the role of limited companies in the UK economy.
Chris Bryce, Chairman of the PCG, said: “The Government is right to look closely at how public servants are being remunerated and where there is disguised employment or tax evasion it should be stopped and fully investigated by HMRC. However, it is fundamentally inaccurate to brand all one-person limited companies as employees attempting to avoid tax. The Prime Minister himself has praised freelance workers and said they make a valuable contribution to the nation’s economy.
“We must ensure we do not create an orchestrated witch-hunt against the nation’s smallest businesses that will damage public and private sector growth in the UK.
“One-person businesses are a legitimate model and the labour market flexibility they provide is vital to the economic recovery of this country. Unemployment is higher than it has been for 16 years, whereas freelancing has grown by 13 per cent in the last three years. We should ensure those rushing to attack limited companies don’t trample the only green shoots of recovery we have seen for quite a time - freelancers.”
The Freelancer and Contractor Services Association (FCSA) who represent some of the providers in the sector, also sprung to the defence of the flexible workforce who operate in this manner. They explained that there was nothing wrong with using the limited company contractor provided the appropriate taxes were paid.
Stuart Davis, Chairman of the FCSA said: "There is nothing wrong or inappropriate for any employer, including the Government to employ contractors at any level of the civil service, if done properly, for the right reasons and where those concerned pay appropriate taxes.
"We would like to remind the Government and those who are criticising these employment arrangements, that freelance contracting work is undertaken by thousands of workers up and down the UK and is a legitimate and valuable way of working that benefits both employers and employees, and generally the competitive elements of the UK economy, which are recognised as necessary for recovery and growth. The key issue is compliance and all stakeholders in the supply chain are responsible for engaging correctly and appropriately.
"I hope that if anything these cases remind policymakers of the important contribution of contractors and freelancers and the flexible workforce as a whole, to the UK economy, whether it be in the public or private sector. Too often the Government adopts a ‘one-size fits all ‘solution to the sector which varies in range from low skilled, low paid temporary workers to highly skilled, well paid professionals.
"We need to ensure the UK has a tax system that recognises the value and risks that freelancers and contractors take and rather than attacking any arrangements, we should be encouraging this flexible workforce as the key to helping the UK get back on its economic feet."
Accountancy firm, Brookson, also warned of the danger of generalisations which could tarnish the entire sector.
Martin Hesketh, managing director of Brookson said: "Once again over the weekend we have seen some strong rhetoric about flexible workers but, sadly, much of this discussion has taken the tired route of making generalisations about the flexible workforce.
“To view this sector as one and the same, as a means to somehow ‘dodge tax’ is unrepresentative and dangerous especially when it is one of the few growth areas of the UK economy.
“The onus is on the Government to encourage the entrepreneurial spirit of the flexible workforce and offer protection at the lower end but encourage, appropriately, those providing high end skills to a variety of end users, acknowledging the risks taken and the value added by these skills to the UK economy.
“Likewise, flexible workers must always seek specialist advice to ensure compliance so that the correct amount of tax is paid; neither too little nor too much, thus ensuring the sector’s reputation can be upheld.”
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Susie Hughes © Shout99 2012