Letters – 27 May

Getting the ‘temp’ treatment

There has been a lot of debate about the government’s decision to change the taxation status of personal services companies, announced in the Budget. But few people seem to have realised the impact this change will have on many members of the profession.

As an accountant as well as an IT contractor operating through my own limited company, I have good reason to be concerned at the implications of the change.

For the unaware, legislation is currently being drawn up by the Inland Revenue to force persons such as myself who contract to clients for the provision of IT services to be treated, in effect, as temporary employees of the client or agency for whom they work.

Should this become law, then not only will contractors suffer a huge increase in their tax bill, but the repercussions on the skills shortage in IT will become worse as my colleagues leave the country in droves.

Many accountants in practice will suffer severe hits on their small company fee income as persons like myself are pulled back under the PAYE umbrella.

Charles Crane, FCCA, FIAP, Winnersh, Berkshire

Harmonise taxes? No I am concerned that you misled your readers in your report ‘Budget row hots up’ (6 May) of the 28 April debate on the Finance Bill – in particular your comments about the discussion on the top rates of stamp duty.

Anyone reading Hansard will discover that there was a long and thorough discussion of the stamp duty increase and of the Opposition amendment.

Conservative members suggested that there was an agenda to harmonise stamp duty across Europe.

You state that I refused to respond – and ‘fuelled the speculation’.

This is absurd. I made it abundantly clear that there is no secret agenda and no European proposal to harmonise stamp duty. My response was quite specific.

It is one thing for you to give your own commentary on the opinions expressed in the House of Commons, but quite another to fail to give me credit for what I said.

Barbara Roche MP, financial secretary to the Treasury

Incorporation motives differ I read with interest the analysis of Richard Baron on the proposed attack by the government of the personal service companies.

Mr Baron is, I think, missing the point. If the company is a genuine trading company with several (or at least more than one) customers, which advertises or actively promotes its services then it should have nothing to fear.

However if it is not such a company then I personally do not see the problem. It has long been an established legal principle that the courts could look beyond the veil of incorporation under the law of equity.

This enabled the courts to ensure that people did not incorporate simply to avoid their legal responsibility.

I do not see what is different between someone who incorporates to avoid tax and someone who incorporates to avoid some other liability. It may even help those of us who do not have the option of working through their own personal company by sharing the tax burden more fairly.

Terry Dullaghan, via email

Redress for bungled audit Can anyone answer a query in relation to the Westminster City Council case?

The Court of Appeal judge who looked at auditor John Magill’s calculations decided that this senior partner of Deloitte & Touche was in error by £20m.

According to an answer given to parliament by Hilary Armstrong, the local government minister, Westminster council taxpayers have paid £3m for the auditor’s costs, and council taxpayers nationally have paid £3.7m for the court costs which have followed.

In any private-sector audit, if an auditor was found to have erred by such a large amount, his client would have redress. For example, Price Waterhouse is suing Coopers & Lybrand, the Maxwell Communication Corporation auditor, for negligence in failing to spot the financial problems of MCC.

What redress do taxpayers have to recover the costs of a bungled local authority audit that has been discredited in the Court of Appeal and which was carried out by a private-sector accountant?

Sarah Saint, ACA, Leigh-on-Sea, Essex

Mid-tiers put in perspective I believe that you paint too gloomy a picture (‘A good partner these days is hard to find’, 29 April) of the ability of mid-tier firms to recruit quality staff at all levels. Perhaps I could put some of your remarks in context.

You suggest that mid-tier firms are ‘struggling to recruit as a result of the spate of recent mergers and rumours of more to come’.

As a mid-tier firm, around 18th in the UK by fee income, we don’t recognise this as an issue, although admittedly we have not featured in the recent merger merry-go-round speculation.

In the current quarter to 30 June, we will have taken on two managers in corporate tax; a director in corporate finance; two directors in management consultancy and a partner in corporate recovery. These are additional appointments, not replacements, and stem from a need to service a growing client base.

You quote accountancy personnel director David Callaghan saying the current difficulties of the mid-tier firms in recruitment extend ‘from trainees to partners’. In our experience, trainees are quite switched on to the breadth and quality of training they get in a firm our size together with the additional level of responsibility that they take on. We receive around 100 applications for every available training contract. People leaving here after qualifying are much sought after by the Big Five.

You conclude that mid-tier firms are increasingly becoming ‘at best, an uncertain bet for any job hunter’. I think this is an extremely harsh judgement to make on the mid-tier sector. In my experience, a growing number of clients, from start-ups to FTSE companies, are betting on the middle-tier alternative; and job hunters are increasingly aware of this.

John Roberts, managing partner, Chantrey Vellacott DFK

Fixated on turnover I note that the government has hinted it will raise the turnover threshold for company audits to £4m (13 May).

I work for a professional firm, and would broadly welcome some increase in exemption threshold, but cannot understand the government’s fixation with turnover alone.

I realise every exemption method could be argued to be arbitrary, but using turnover alone surely discriminates against the low-margin retailer (for example, a petrol station franchisee).

Would it not be more sensible to simply exempt all small companies (as defined by the Companies Acts) in the first instance, and eventually move to only requiring an audit of large companies, or those listed on the Stock Exchange?

Marc A’Hara, ACCA, via email

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