Taxman seeks to tighten up IR35 with consultation

THE TAXMAN has released a consultation document, setting out plans to compel senior members of organisations to be paid on-staff, rather than engaged through personal service companies, potentially allowing them to save on tax and national insurance contributions.

The move comes after controversy when 2,000 senior office holders of public bodies were revealed to be receiving payment off-payroll, while there have been calls for the BBC to make similar disclosures.

Yesterday, secretary of state for the Treasury, Danny Alexander (pictured), told ministers “dozens” of public sector workers were paid in this way for more than ten years, and while he could reveal their job titles and lengths of contract, he could not name them.

The consultation document attempts to tie up the loopholes in the existing IR35 legislation, designed to prevent people engaged through personal service companies (PSCs) from taking home more money than they would if they were directly employed.

It does this by proposing legislation provisions which would “require the engaging organisation to place all controlling persons on the payroll… even where they might be working through a PSC for other purposes”.

That would mean that the money paid by the engager to the PSC would be treated as if it were remuneration of an employee, allowing national insurance and income tax to be deducted at source by the engaging organisation.

Jayne Vaughan, tax partner and head of employment tax at KPMG, said the measures could have more far-reaching effects than necessary, and branded it “surplus to requirements”.

She said: “The essential problem that the authorities are trying to fix is that of government departments engaging senior ‘controlling persons’ via PSCs. They are attempting to address this by changing the rules for all employers – not just government departments.

“The knock-on effect of this for many private sector employers is that it could become more complicated, more expensive and more difficult for them to obtain the services of the people they need when they need them.

“There are concerns about wider tax leakage from the general use of PSCs but these are already being addressed via changes already under way to the IR35 regime.”

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