Select committee looks at PSCs and IR35

Friday 22 November 2013

Personal service companies and the effectiveness of IR35 legislation are set to be the topics covered by a new select committee of the House of Lords.

The committee will carry out an enquiry into the efficacy of personal service companies and how they impact on tax collection, led by its chair Baroness Noakes. At the same time, the group will look into related issues around the use of personal service companies, including how frequently they are used to provide services for businesses and public sector and whether anyone working in the public sector should be allowed to do so through such an organisation.

More broadly, the questions asked by the company will include issues including the advantages and disadvantages of working in this way aside from the obvious matters of tax and National Insurance contributions. Working through a limited company offers a number of advantages as well as its tax efficiency, such as the freedom to build a brand and develop a distinctive business identity. These are the benefits that limited company contractors will be hoping are brought to the committee’s attention, since much of the peers’ work looks to be focused on issues of tax.

Contractors in certain industries know that some large businesses look more favourably on limited companies - indeed, some firms may refuse to work with anyone who does not operate in the way. The committee will also be discussing the industrial impact on use of personal service companies, as well as whether or not this is appropriate in every instance.

It is likely that this will bleed into investigation of disguised employment legislation. The infamous IR35 rules have caused some contractors considerable stress and hassle, with some even suggesting that it has become harder for them to accept some contracts because they are uncertain of their tax position. In particular, confusion still reigns on what exactly is classed as an “office holder” - a term on which contractors have been promised clarity but so far received very little. As a result, any discussion of the efficacy of these rules is likely to be welcomed by contractors.

“This inquiry will form a wide-ranging review of the use of personal service companies,” says Baroness Noakes. “During the course of this new inquiry, we will consider extent to which personal companies are used and the implications for tax, National Insurance and other wider issues, both from the point of view of workers and those who engage them.

“In these economically difficult times, it is important that the government receives the tax it should rightfully be receiving, from all those who should be paying it. Equally, we need to ensure that our tax system does not place unreasonable burdens on taxpayers. Of course, this is a complicated topic.”

The committee is working on a surprisingly short time frame, expecting to make recommendations to the government by March next year. As part of its investigations it has put out a call for evidence on the subject of personal service companies, inviting anyone who has any interest in the subject to submit their views on the matter by December 31st.

By Victoria McDonnell

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