A new consultation “The Taxation of Controlling Persons” seeks to tackle what the Government sees as a growing problem: people working in senior positions in both the public and private sector but using personal service companies to disguise employment.
The consultation proposes IR35, but in reverse, so that when an organisation engages “a controlling person”, e.g. someone with managerial control or the ability to shape an organisation, it should be required to deduct PAYE and NICs on their income at source. This would mean looking through an individual’s personal service company and will mean that the controlling person’s company does not have to self-assess under IR35.
On a salary of £120,000, the measure would raise revenue of £23,211 per head, an increase tax and NICs due from £34,305 to £57,516.
The provisions would not apply to workers who are not controlling persons, and so the vast majority of those who work via personal service companies will be unaffected.
Micro businesses, those who employ fewer than 10 persons and whose turnover or balance sheet does not exceed EUR20 million, would be exempt from the obligation to deduct taxes from controlling persons they engage.
The consultation follows a review by Chief Secretary to the Treasury, Danny Alexander into what he termed “Off-payroll engagement” in the public sector where he discovered some 2,400 top civil servants were working via personal service companies. He has established that most senior public sector staff should be on the payroll, and that it is especially important in the public sector that it is transparent that tax obligations are being met.
Consultation: The Taxation of Controlling Persons
Publication date: 23 May 2012
Closing date for comments: 16 August 2012