Controlling persons legislation should not apply to short-term contracts
Posted Aug 3, 2012
A leading provider of interim managers has expressed its concerns over the Government's 'taxation of controlling persons' proposals, which could affect thousands of executive interims who work via their own limited companies.
What are the Government's proposals?
In May, the Treasury published a statement announcing a consultation on its controlling persons' proposals, which would see influential consultants and interims taxed at source by the organisations they are assigned to.
Rather than being remunerated on a business to business basis, these individuals would have National Insurance and income tax deducted at source.
The benefits of hiring interims
Unsurprisingly, the proposals have been widely criticised by industry bodies such as the Institute of Interim Management (IIM) and PCG.
The proposals could destroy an industry that has thrived in the past few years, providing essential services to the private and public sector at a time when organisations are benefitting from the short-term specialist advice interims can provide, without having to undergo a costly recruitment process to hire permanent managers.
Interims can be in place within 10 days, and save host organisations from the constraints of employment legislation which apply to the hiring of full-time employees.
Could legislation only apply for longer assignments?
Penna Plc has suggested that, if new legislation has to be enacted, the new rules should only apply where a limited company interim is placed on assignment for over 12 months. Most interim assignments are short-term in basis, and last between 8 and 10 months on average.
New rules could be costly for clients
A recent IIM poll suggests that almost all interims would reject the proposals and would no longer use limited companies should the rules become law. In fact, 97% of respondents said that they would simply increase their daily rates to offset the costs of any increases in tax - meaning that clients would be faced with higher costs when recruiting interims.
The consultation lasts until 16 August, and can be downloaded here (PDF).
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