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PCG gives cautious welcome to new tax proposals
Posted Dec 6, 2006
The Chancellor's proposals to remove the tax advantage offered by composite and managed service companies is the big story for freelancers and contractors in today's Pre-Budget Report. The Professional Contractors Group (PCG) has said it has no objection to the proposals in principle.
"It's the Chancellor's prerogative to suggest reforms that remove opportunities for tax avoidance that offer an unfair advantage," commented PCG's chairman David Ramsden. "We would agree that workers using composite and other forms of managed service company do gain a tax advantage when compared to contractors who take on the full responsibilities of being in business, such as by using bona fide limited companies. However, it's legitimate that contractors should seek to plan to reduce their tax bills by legal means."
PCG has long been critical of the use of terms such as "non-compliance" to erode the distinction between evasion and avoidance. Managed service companies' arrangements currently constitute avoidance and are therefore currently legal; PCG welcomes the direct approach taken here of introducing changes via statute.
"It is crucial that the scope of this measure is defined to include managed service companies but not freelancers and contractors who are genuinely in business," continued Mr Ramsden. "We would of course not welcome an additional tax burden on the latter group. Our preliminary reading of these proposals suggests that they are sound in this respect."
PCG advises people thinking about going freelance that they should always do so within the law and get expert advice.
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