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Public sector contractors could cease to exist

Industry body, PCG, has warned that Government proposals to clampdown on the use of limited companies by contractors and consultants could result in significant job losses.

Earlier this year, The Treasury announced that many individuals working for public sector bodies, who were currently being remunerated ‘off payroll’, would soon have to demonstrate that they were meeting their ‘income tax and National Insurance obligations’, or face having their contracts terminated.

The new rules apply to limited company workers earning in excess of £220 per day, and working on assignments lasting 6 months or more.

Contractors’ group, PCG, has seen a leaked document which outlines how the proposals are likely to be implemented by Government departments. In essence, it appears as if targeted individuals will be faced with a choice between operating within the IR35 rules, or losing their jobs.

John Brazier, MD of the organisation, said that the hastily drawn-up proposals could “destabilise many Government Departments”, and would affect thousands of regular contractors and consultants who are not the intended targets of the changes.

The proposals were drawn up in response to press revelations that senior public sector officials, such as Ed Lester (Student Loans Company Boss) and others, were being remunerated via their own personal service companies, rather than via the public sector payroll.

Brazier points out that the Ed Lester, and similar cases, were clearly cases of “false self employment”, and that the proposed remuneration rules would affect legitimate contractors “who have done nothing wrong and are taking the brunt of a panic stricken Government and an HMRC who have launched a witch hunt.”

The new rules are expected to be implemented as soon as 15th September 2012. Worryingly, PCG says that the business tests which accompany the assurance guidance, together with the financial punishment for departments who do not comply with the rules, will result in “almost no room for legitimate freelancers to exist.”

We will update Company Bug with any further developments which take place before and after the planned implementation date.

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