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The Chartered Institute of Taxation (CIOT) has issued its advice in response to the Government’s consultation on ‘The Taxation of Controlling Persons’. This came about as a result of adverse publicity about senior Government appointees, including Head of Student Loans Company, Ed Lester, who operated through their own companies allegedly to avoid tax and NI but were basically working full-time in public sector positions.
There have been concerns that the Government would over-react to this problem and has already indicated that it intends to legislate to ensure that people who are in 'controlling' positions within an organsiation are taxed at source. Some have thought that this would affect a wider range of people than the measure was originally targeted at.
Now the CIOT has come out and reminded the Government that this is a problem which appears to be within the public, rather than private, sector and has suggests the answer is to extend rules for appointments in the public sector, rather than by imposing new legislation which will impact the private sector.
IR35
The consultation was launched after a review conducted by Chief Secretary to the Treasury Danny Alexander found that 2,000 senior public officials were being paid ‘off payroll’. Although there has been much adverse publicity about such people being subject to corporation tax of 20-25 per cent rather than paying up to 50 per cent in income tax, the CIOT points out that the existing ‘IR35’ rules are there to police such situations. A point that has also been made by Shout99 and its contributors for some time. (See: So where's IR35 with public servants' limited companies? - Feb 2012)
Furthermore, in May the Government proposed new tighter rules for ‘off payroll’ appointments by central Government. The CIOT suggests that these should be applied to local government and other public sector bodies, rather than legislating - as the consultation proposes - to require all organisations in both the public and private sectors to place senior managers and other ‘controlling persons’ on the payroll with income tax and NICs deducted at source.
In short, the CIOT believes that the Government’s understandable wish to ensure that those running Government agencies and other public sector bodies are paying their fair share of tax can be met using a combination of existing legislation and the new rules for central Government appointments.
Little need
CIOT Tax Policy Director John Whiting said: “There seems to us to be little need to introduce new rules for the private sector. The consultation document does not identify a particular mischief that is occurring in the private sector that is not already addressed by the IR35 rules and the rules on agency workers.
"In particular, we do not think the document makes the case for intervention by way of deduction of PAYE/NICs at source, not least in view of the complexity that this would add for those individuals affected, end-users and HMRC.
“Accordingly, we are asking the Government to reconsider whether there is a need for the proposed measure. If further information is required in relation to particular arrangements involving personal services companies and controlling persons then there is existing legislation which should enable the Government to obtain this.
“This would be a practical and proportionate way forward, whereas legislation requiring deduction of PAYE/NICs at source for payments to intermediaries would add unnecessary complexity to the tax system.”
Related stories on Shout99
For general coverage of IR35 policy and cases, see Shout99's News on IR35 section.
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Susie Hughes © Shout99 2012
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