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Last week the Government announced its plans to tax senior public workers who operate through their own limited companies, the so-called 'personal service companies', at source. The announcement follows severe media condemnation of some top Government workers, including Student Loans Company boss, Ed Lester, who operate through their own companies to mitigate tax. (See: Government clampdown on senior 'off payroll' workers - Shout99)
However, KPMG has questioned the need for this heavy-handed approach when IR35 already exists to deal with it and asks why, if the objective was to prevent Government departments operating in this way, the Government didn't just introduce a ban.
Echoing fears across many areas of the freelancing sector, the accountancy firm predicts that the changes could go far wider and affect private sector companies, add complexity and cost to all businesses, and make using flexible workers a less attractive option.
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“The knock-on effect of this for many private sector employers is that it could become more complicated, more expensive and more difficult for them to obtain the services of the people they need when they need them. At a time of economic difficulties with the focus very much on growth, making it easier and more flexible to hire people seems to make sense.
"In a number of sectors (such as construction, Engineering, IT) there are likely to be a number of individuals who are routinely engaged via PSCs and could be caught by the definition of “controlling person”, suggested to include for example having managerial control, controlling budgets and/or the workforce etc.
“A simpler and easier approach would be to simply introduce a policy under which Government departments were not allowed to use these personal service companies if that is the objective being sought.
“There are concerns about wider tax leakage from the general use of PSCs but these are already being addressed via changes already under way to the IR35 regime. All in all today’s consultation document seems surplus to requirements.”
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Susie Hughes © Shout99 2012
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