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Following the recent attacks on public servants who have been remunerated via their own personal service companies rather than PAYE, a leading contractor accountant says that the strong anti-limited company rhetoric we have seen in the last few weeks is damaging to the country's flexible workforce.

Public sector individuals giving limited companies a bad name

Since the case of Student Loans Company boss Ed Lester hit the headlines, it has emerged that a number of other highly ranked public servants have also been paid their salaries via limited company structures.

It has been argued that these individuals have set up their own companies purely to save tax, and are in no way in business on their own account. As such, they should all be placed on the payroll, or have their contracts subject to the IR35 rules.

There is a danger that such negative sentiment against the use of personal limited companies may reflect poorly on professional contractors and other individuals who are running businesses, and take far more risks than a salaried employee.

Also, many newspapers have falsely compared the difference between the income tax and NIC deductions of a traditional employee to just the Corporation Tax deductions of a limited company to 'illustrate' the savings these public officials may have made.

However, although there are tax savings for non-IR35 company directors, these commentators have failed to mention that personal tax will also be payable on dividends once they are made, as well as Corporation Tax.

Generalisations about limited company professionals unfair

Martin Hesketh, MD of Brookson, has noted that much of the media discussion of limited companies has "taken the tired route of making generalisations about the flexible workforce."

"To view this sector as one and the same, as a means to somehow 'dodge tax' is unrepresentative and dangerous especially when it is one of the few growth areas of the UK economy."

Hesketh says that the Government needs to acknowledge the contribution that freelancers make to the UK economy, and the risks they take compared to the rest of the workforce.

"Likewise, flexible workers must always seek specialist advice to ensure compliance so that the correct amount of tax is paid; neither too little nor too much, thus ensuring the sector's reputation can be upheld."

PCG warns against limited company 'witch hunt'

Last week, the PCG also warned about a potential 'witch hunt' against limited companies.

Chairman Chris Bryce said:

"We must ensure we do not create an orchestrated witch-hunt against the nation's smallest businesses that will damage public and private sector growth in the UK."

"One-person businesses are a legitimate model and the labour market flexibility they provide is vital to the economic recovery of this country."