New Government proposals to threaten flexible working

The Association of Professional Staffing Companies (APSCo) and the Institute of Interim Management (IIM) have warned that Government proposals set out in ‘The Taxation of Controlling Persons’ will be hugely detrimental to the professional flexible staffing sector, and will increase costs for UK employers at a time when many businesses are struggling.

‘The Taxation of Controlling Persons’ was published on May 23, 2012 by HMRC and includes a Government proposal that means some professional contractors deemed ‘controlling persons’ will have income tax and national insurance deducted at source. Therefore, they will be taxed as an employee even if they are working through a personal services company.

According to the APSCo and IIM, the controversy stems from the Government’s assumption that someone classified as a ‘controlling person’ has some form of managerial control and/or control over a significant proportion of a company’s budget and consequently must be an employee. There has been growing concern surrounding the issue of individuals working through personal services companies to disguise employment. The APSCo and IIM argue that this is based on the belief that when IR35 legislation was introduced 12 years ago, it was unusual for a ‘controlling person’ to be engaged through their own limited company.

Ann Swain, chief executive of APSCo, commented: “Yet again, the professional staffing sector and UK employers are in danger of suffering collateral damage in the Government’s broad brush approach to employment legislation. These professional contractors are not the ‘fat cat tax avoiders’ referred to in recent press reports, but are skilled professionals working on short term projects for organisations undergoing change management programmes, turnarounds or other business critical issues. Assuming that all controlling persons are in fact employees is a fundamentally flawed argument as it takes no account of the professional interim market.”

“Additionally, the frankly bizarre conclusion that the increase in individuals using personal services companies is related to a deliberate attempt at disguising employment status is also flawed. There has indeed been an increase in the use of personal services companies by professional contractors operating at a senior level - but this is directly related to the growth of the interim market. According to a recent IPsos MORI Survey, the amount of business generated by the interim management sector has jumped 93 percent in the past five years which, given the Government’s agenda for growth, should be applauded rather than penalised.”

Ad van der Rest, co-chairman of the IIM, added: “These proposals are ill considered, they attempt to address the wrong problem and they threaten to damage the UK economy by freezing out a vital community of interim executives who are just the sort of flexible leaders that are needed in the current climate. Senior interim executives undertake engagements, often in turnaround and crisis situations on finite contracts and carry out assignments as independent businesses moving from engagement to engagement. The implication that all senior interims are in some way trying to evade their legal obligations by hiding behind personal service companies is perverse and the notion that an independent professional providing business services should be debarred from their professional trade on the basis of their seniority is illogical and anti-business.”