The ‘Controlling Persons’ consultation involves individuals that work ‘off payroll’ to control large numbers of staff, or parts of the budget in the company for which they work.
Taking on board the government’s objectives, and the concerns of business, the Association of Recruitment Consultancies (ARC) has proposed in its response that the government could allow a two year “qualifying period” during which normal company tax rules will apply, with any change to the tax rules applying thereafter.
“The ARC proposes a fair period of two years, after which it could possibly be argued that the temporary nature of the role has effectively changed, justifying a change in tax status”. This is in line with the approach taken by current tax rules on expenses for temporary placements.
Adrian Marlowe, chairman of the ARC, which represents agencies who introduce and supply senior managers to hirers, explains “We believe that generally where someone is hired in an interim or senior temporary role (which may fall into the category considered under the consultation)
Even after the suggested two years, the ARC argues that if the work is demonstratively project work, and the individual is genuinely taking risk, investing in necessary skills and support training, and accepting liability on an ongoing basis (in other words, still working as an independent engaged expert), it would be quite wrong if the advantages provided by standard company tax rules (which are designed to encourage inward investment and growth), are removed; “We are concerned that if enacted, the current proposals could destroy real businesses.”
The ARC also criticises the plan to apply the new regime to managers who are supplied by agency providers. Marlowe says “as those managers are paid by the agency or interim provider how could the proposals, which require the hirers to deduct tax at source under the PAYE scheme, work? Hirers are invoiced by the agency for the services of the manager, and have no payment relationship with the individual. An attack on payment arrangements could only damage the supply industry at this level.”
There may be some instances of ‘inappropriate’
Notes for journalists - contact Sarah Morgan on 01273 777997
The consultation into taxation of so called ‘Controlling Persons’, namely individuals who are currently ‘off payroll’ but who control large numbers of staff or parts of the budget in the company for which they work, closed on 17th August.
The individuals, many of whom are professional interim managers, will now have to wait and see whether they will be required to be paid as if they were employees rather than independent professional experts hired in to provide a temporary solution.
It remains to be seen whether the tax take will outweigh the potential downsides. Many fear that hirers will be deterred from using interim managers because of the higher tax burden the proposed rules will bring on them, and that this will reduce flexibility.
Also there is clear concern that the long established principle that company tax rules always apply where the service provider is a company will be eroded, and thus undermine confidence in the use of companies as a vehicle for providing individual services.
To get to the point where they are considered they may well have invested heavily into their businesses, for example by paying for up to date training, technology and marketing. That profile can only really change if the individual settles in and stays with the same hirer for a significant period.