Interim tax and regulation
The regulatory environment for interim managers and executives can be complex. As self-employed professionals, there is company tax law, VAT and IR35 to consider. Since 2010 regulations are on the increase to control and limit tax avoidance. In principle a good thing, but such rules require careful navigation by the interim community who are genuinely conducting businesses in their own right.
This page outlines regulatory matters of interest as well as a few regulatory scuffles and battles that the Institute of Interim Management have taken part in.
House of Lords Personal Service Company (PSC) enquiry
A Select Committee of the House of Lords, chaired by Baroness Noakes, is conducting an inquiry into the use of Personal Service Companies in the public and private sectors. The committee opened its doors on the 25th November 2013. It will take evidence in written form up to the 31st December 2013 and further oral evidence from November to January, reporting its findings to the House of Lords, with recommendations and conclusions, in March 2014.
Naturally, the IIM will be making a written submission before the December deadline.
The Committee intends to consider the implications for tax, National Insurance and wider issues both from the point of view of workers and their clients. The Committee seeks evidence on any aspect of this topic, particularly on the following questions:
- To what extent are Personal Service Companies being used for the provision of personal services to UK businesses?
- What is your view of the effectiveness and efficiency of the intermediaries legislation, first introduced in 2000, in facilitating tax collection?
- Should the current intermediaries legislation be reformed and if so, what would be the alternatives?
- To what extent does the current IR35 legislation impose additional compliance burdens and administrative costs?
- Are the current avenues of consultation on IR35 working and what more should be done to ensure that the Government listens to interested stakeholders?
- Are HMRC’s recent efforts in improving the administration of IR35 judgement cases working? Is more guidance and advice needed to aid individuals in judging the status of business transactions for themselves or should further resources be given to HMRC for compliance efforts?
- Do businesses insist on the use of Personal Service Companies? If so, should responsibility be placed on them rather than the worker to decide whether a business transaction falls within IR35?
- Are individuals forced into the use of a Personal Service Company as a prerequisite for being considered for work? If so, what can be done to ensure that the use of a Personal Service Company is appropriate for the individual?
- To what extent are Personal Service Companies still used in the Public Sector? Should those engaged in public bodies and similar organisations be prevented from working through a Personal Service Company? If so, would the Public Sector experience difficulties in obtaining the skills and expertise that are needed?
- What role do Umbrella companies play? To what extent are agencies encouraging individuals to enter into such structures?
- Aside from the issues of Tax and National Insurance, what are the wider benefits and drawbacks for the individual of using a Personal Service Company?
Select Committee call for evidence
News about the Select Committee on Personal Service Companies
Autumn Statement 2013: A glimmer of hope?
The Autumn Statement 2013 was pleasingly light on excitement for interim managers and executives. There were some announcements in the area of tax avoidance aimed at employment intermediaries passing off Duty-Free shop workers as self employed consultants, but otherwise nothing troubling. Yes, the government is seeking to win a £9bn windfall over the next five years from a crackdown on tax avoidance, evasion and fraud, affecting companies as diverse as hedge funds and oil rig leasing firms, but this does appear to be sensibly targeted.
A very helpful statement in 1.306 of the Autumn Statement is:
“The government strongly supports enterprise and those who choose to work for themselves, and believes that the tax system should continue to recognise the additional risk someone who is genuinely self-employed takes on.”
IIM extract of the relevant sections of the Autumn Statement 2013
Finance Bill 2013 Office Holder regulations
The Finance Bill 2013 sought to strengthen the tax regulation of office holders by bolstering the IR35: Clause 49, in Chapter 8 of Part 2 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003. A technical consultation ran across Christmas and the New Year (11th December to 6th February), but as the (ITEPA) 2003 proposals were buried in the 700 page Finance Bill 2003 (and despite a spirited defence) the Bill passed into law with consultative proposals disregarded (in respect of ITEPA at least on the 17th July 2013.
The following documents address the Finance Bill, (ITEPA) 2003 and the positions of HMRC and the IIM with respect to office holders.
IR35 clause 49 (ITEPA) 2003 as amended 2013
IIM office holder regulations survey and guide (July 2013)
IIM response to Office holder proposals (March 2013) (Open document setting out concerns)
IIM Response to Finance Bill 2013 consultation (Feb 2013) (Submitted to the consultation process)
Explanatory notes to Finance Bill 2013 (Particularly Resolution 13, Clause 22)
Explanatory notes to Finance Bill 2013 (extract)
Finance Bill 2013 (Particularly page 9, which is the 17th page including contents)
Case Law: Edwards v Clinch (1981)
Autumn Statement 2012 on controlling persons and office holders
In the Autumn Statement 2012 (December 2012), the Chancellor announced that “The Government has decided not to proceed with the proposal to tax those who meet the definition of a controlling person at source.”. Less helpfully this came with the sting in the tail that “the Government is strengthening the existing intermediaries’ legislation (IR35) to put beyond doubt that it applies to office holders for tax purposes.”
As one round of consultation over ill-drafted regulation concluded, another round would now begin.
Autumn Statement 2012 (Particularly pages 52-54 and 70-72)
Implementing the HM Treasury review of tax arrangements in the NHS 2012
In August 2012, a letter, written by the NHS Chief Executive and leaked by the Health Service Journal (HSJ), indicated the extent to which the Review of the tax arrangements of public sector appointees published by Danny Alexander in May 2012 was stifling and curtailing the use of off payroll executives, including senior interim professionals, in the public sector.
Implementing the recommendations of the HMT review of tax arrangements.
The Taxation of Controlling Persons consultation 2012
HMRC & HM Treasury embark on The Taxation of Controlling Persons consultation (May 2012). The proposals, to essentially force senior interim managers onto the employer payroll, was deeply flawed, but was eventually abandoned in December 2012.
Response to consultation abandoning the Taxation of Controlling Persons proposals (December 20120.
IIM Interim Management Survey (September 2012). (particularly the lead article on pages 10-18)
IIM response to the Taxation of Controlling Persons consultation (August 2012).
IIM: Interim management profession threatened by regulations (July 2012). (22 page version)
IIM: Interim management profession threatened by regulations (July 2012). (2 page version)
The Taxation of Controlling Persons consultation (May 2012).
Review of the tax arrangements of public sector appointees 2012
Danny Alexander’s: Review of the tax arrangements of public sector appointees (May 2012) set out to address the Budget 2012 aims of tackling avoidance through the use of personal service companies.
The review addresses a lack of transparency around the tax arrangements of key public sector appointees and the desire of the government to gain tax assurance that the individuals are paying the right amount of income tax and National Insurance in relation to their roles.”
Budget 2012 measures on PSC tax avoidance
Budget (March 2012) announces: “2.207 Personal service companies and IR35 – The Government will introduce a package of measures to tackle avoidance through the use of personal service companies and to make the IR35 legislation easier to understand for those who are genuinely in business.”
This announcement heralded the intention to, subject to consultation, require office holders/controlling persons integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they were engaged.
Budget 2012 (Particularly section 2.207, page 77)
Student Loans Company controversy 2012
The government was embroiled in controversy when the interim head of the Student Loans Company was found to be paid off payroll. Whilst the arrangement had been signed off by HMRC the matter became a cause célèbre for the new coalition government who embarked upon a series of initiatives to combat tax avoidance in the public sector and in general.
BBC News 1st February 2011: Civil servant tax claims: Danny Alexander orders review.
BBC News 2nd February 2011: Student Loans chief ‘to pay tax at source’.
Agency Workers Regulations 2010 (AWR)
Implemented in the UK on the 1st October, the AWR are designed to protect low-paid agency workers from exploitation.
Professional Interim Managers and Executives who are genuinely in business on their own account fall ‘out of scope’ of these regulations.
IIM: Client fact-sheet explaining interim managers are out of scope of AWR (October 2011).
BIS guide to the AWR (May 2011).