The government’s knee-jerk capitulation to media hyperbole over senior civil servants evading tax by working through personal service companies is likely to have ramifications in the private sector as well, KPMG has warned.
This unplanned consequence of the new rules proposed by the Treasury hinges on the term ‘controlling person’ which, according to Jayne Vaughan, head of employment tax affairs at KPMG, applies to “all employers – not just government departments.” She said in an interview with ContractorUK:
“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.”
Of course, this is likely to apply to a number of contractors working through limited companies in the private sector as well. Ms Vaughan did not mince her words: the new rules could “ban the use of limited company contractors in situations where they would be acting as ‘controlling persons’ in a business.”
Will there be a contractor stampede toward umbrella companies? A spokesman from the tax and accountancy firm PKF thinks not. The legislation actually states that all ‘office holders’ should be on PAYE payroll and, as virtually all of the newly defined controlling persons are already office holders rather than independent contractors, the rules will have little effect beyond the public sector.
Philip Fisher, PKF’s head of employment, said that the only true solution was to unify tax treatment for the employed, the self-employed and contractors running their own companies. He added that the chancellor seems averse to tackling such a “hornet’s nest”.