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Tax body says ‘controlling persons’ proposals should not apply to private sector

The CIOT is the latest organisation to voice its opposition to the Government’s ‘controlling persons’ proposals, which would force organisations (both private and public) to tax consultants who currently work via their own limited companies, at source.

Clampdown on personal services company use in public sector

Following revelations that over 2,000 public sector workers currently use their own personal service companies, Danny Alexander (Chief Secretary to the Treasury) put in place departmental guidelines to ensure that limited company contractors on £220+ per day for contracts of six months or more must be able to prove that they are genuinely self employed.

Contractors’ organisation, PCG, says that the IR35 business test is likely to be used for such purposes later in the year. This could not only cause confusion, the group says, but given the way the answers are currently scored, most people taking the test would be at a medium or high risk of an IR35 investigation. This could result in an exodus of limited company contractors from the public sector.

Controlling persons proposals criticised

The 16th August 2012 saw the end of a consultation period for the ‘controlling persons’ legislation. Under the proposals, any individual deemed to be ‘influential’ to an organisation (e.g. interim managers) should be taxed via the payroll of their host firm or department.

The proposals have been roundly condemned by a multitude of organisations. Critics say that legislation already exists to tackle situations where ‘disguised employment’ is taking place (IR35), and it is indiscriminate in that it would affect both the public and private sector.

The Chartered Institute of Taxation (CIOT) is the latest to voice an opinion on the proposals. The body says that rather than creating new rules to deal with the scenarios in question, the Government should use existing rules to tackle the use of personal service companies in the public sector, but private sector firms should not be included in any changes.

CIOT Tax Policy Director, John Whiting, said: “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.”

Whiting said that a practical and proportionate solution was needed, not one which would add even more complexity to the tax system.

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