The Chartered Institute of Taxation (CIOT) says that there is no need for new legislation to tackle off-payroll hiring of ‘controlling persons’. Instead the Government should combat the problem by extending existing rules for appointments in the public sector.

The CIOT sets out its views in its response to the Government’s consultation on ‘The Taxation of Controlling Persons’ launched after a review conducted by Chief Secretary to the Treasury Danny Alexander found that 2,000 senior public officials were being paid ‘off payroll’.

In May the Government proposed new tighter rules for appointments by central government. The CIOT suggests that these should be applied to local government and other public sector bodies, rather than legislating (as the consultation proposes) to require all organisations in both the public and private sectors to place senior managers and other ‘controlling persons’ on the payroll with income tax and NICs deducted at source. The CIOT points out that the existing ‘IR35’ rules are there to police such situations.

Commenting, CIOT Tax Policy Director John Whiting said:

“There seems to us to be little need to introduce new rules for the private sector. The consultation document does not identify a particular mischief that is occurring in the private sector that is not already addressed by the IR35 rules and the rules on agency workers. In particular, we do not think the document makes the case for intervention by way of deduction of PAYE/NICs at source, not least in view of the complexity that this would add for those individuals affected, end-users and HMRC. 

“Accordingly, we are asking the Government to reconsider whether there is a need for the proposed measure. If further information is required in relation to particular arrangements involving personal services companies and controlling persons then there is existing legislation which should enable the Government to obtain this. 

“This would be a practical and proportionate way forward, whereas legislation requiring deduction of PAYE/NICs at source for payments to intermediaries would add unnecessary complexity to the tax system.”

Editorial comment

According to minutes of the IR35 forum HMRC is at last considering giving statutory backing to the Service Company question on the P35, the question asks, "Are you a service company who has operated the intermediaries legislation (IR35) or the managed service company legislation?" Presumably P35s would require a rewrite if the taxation of controlling persons proposals go ahead.