House of Lords Committee and Personal Services Companies use
The Lords Committee was advised that ‘confusion and complexity’ is driving the increase in the numbers of individuals operating via Personal Services Companies (PSCs).
The law lords are looking at the extent to which PSCs are being used, and the efficiency in tax collection based on the rules around their use.
One key advantage is the benefit for companies to remove the risk of a challenge from HMRC as to whether a worker on a short-term contract is employed or self-employed. Under IR35 this is decided between HMRC and the individual concerned, giving the “employer” company protection from any potential tax risk.
Recent developments such as HMRC’s review of false self employment, changes to the rules for the Construction Industry Scheme, managed services companies and umbrella companies, have left the current tax system “fragmented”.
A view was expressed that attempts to change the IR35 rules by, for example, introducing penalties for employers where the individual was deemed not to meet the criteria for operating under a PSC, would produce a significant administrative burden which would lead companies to opt for larger workforce providers and potentially removes SMEs for the supply chain.
The committee aims to report its conclusions and recommendations in March.
Date: 29th January, 2014
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