Today’s Budget contained measures to stop workers from using personal service companies (PSCs) to avoid tax whilst working for public sector bodies.
These measures could be seen as a reaction to the John Birt private company furore of more than 20 years ago, or more likely, the Student Loan Company scandal of more recent times, involving its director, Ed Lester. Public sector bodies who engage workers via PSCs will be responsible for ensuring that the provisions of IR35 are followed by those PSCs. If a PSC is not following the IR35 rules, then the public sector body will be responsible for ensuring the correct tax is paid. If the services of a PSC are supplied through another intermediary, that intermediary will be responsible for ensuring IR35 is applied correctly. The only respite is that this is not due to be implemented until April 2017, so at least there is some time to work through the implications.
This approach mirrors the recent developments in the payment of travel and subsistence expenses, which are due to be implemented from next month, which puts the onus on the intermediary or the end-user to ensure that the right amount of tax is paid.
Further to the above, the Red Book goes on to state that IR35 rules are complex and that the government will be consulting on simplification. Could we be applying the supervision, direction and control test that is within travel and subsistence rules for contractors working in the public sector at some time in the future?
To add to the angst of anyone operating a personal service company and thinking that the new dividend tax could be avoided next year by taking a loan from their company, the rate at which such loans are taxed is increased to 32.5% from next month, making such loans as expensive in cash flow terms for higher rate taxpayers as dividends.
There will be further commentary on this area once all the relevant Budget documentation has been released and pored over. If you have any questions in the mean time, please don’t hesitate to contact myself or Marie Pegram.