Lording it over PSC’s

House of Lords Select Committee to begin scrutinizing personal service companies

A House of Lords Select Committee has been set up to consider the consequences of the use of personal service companies for tax, NIC and wider issues both from the point of view of workers and their clients.

The 12 person committee will be chaired by former KPMG partner and Tory life peer, Baroness Noakes. She was also the first female president of the ICAEW back in 1999. The Baroness said, “This inquiry will form a wide-ranging review of the use of Personal Service Companies. During the course of this new inquiry, we will consider extent to which Personal Companies are used and the implications for tax, National Insurance and other wider issues, both from the point of view of workers and those who engage them.

In these economically difficult times, it is important that the Government receives the tax it should rightfully be receiving, from all those who should be paying it. Equally, we need to ensure that our tax system does not place unreasonable burdens on taxpayers. Of course, this is a complicated topic.

This is why I would encourage anyone who has an interest or experience in this area to send us their evidence and contribute to the debate.”

The Select Committee’s inquiry will begin today, 25th November, by questioning representatives from HMRC in the first evidence session. Evidence will be heard from:

At 4 p.m:

• Rowena Fletcher – Deputy Director with special responsibility for the Employment Status Team
• Robin Wythes – Team Leader of the Employment Status Team

Likely questions:
These two witnesses are likely to be asked:

• How many PSC’d there currently are in the UK and how many are caught by IR35?;
• How long the average IR35 investigation takes and how many are awaiting Tribunals?;
• The feedback received since HMRC published its IR35 guidance in May 2012; and
• What evidence they have, if any, that people are abusing expenses rules through PSC’s?

At 5 p.m:

• John Whiting – Director of the Office of Tax Simplification (OTS)

Likely questions:
John is likely to be asked:

• If he considers that HMRC has focussed its work on industries where the use of PSCs is most prevalent;
• If the new framework implemented by HMRC helps public sector workers employed through PCS’s to know if they have paid the right amount of tax;
• Any other industries that use large numbers of PSC’s which have yet to be identified; and
• If the difference in rules on tax deductible expenses for employees and the self-employed has an impact on people’s compliance with the law.

Public hearings of oral evidence will continue into the New Year but the Committee is also seeking written evidence from anyone with an interest. Cut off date for submitting such evidence is 31st December 2013. Although any evidence on IR35 is welcomed, of particular interest to the Committee are responses to any of the following questions:

1. To what extent are PSC’s being used for the provision of personal services to UK businesses?
2. What is your view of the effectiveness and efficiency of the intermediaries legislation, first introduced in 2000, in facilitating tax collection?
3. Should the current IR35 legislation be reformed and if so, what would be the alternatives?
4. To what extent does the current IR35 legislation impose additional compliance burdens and administrative costs?
5. Are the current avenues of consultation on IR35 working and what more should be done to ensure that the Government listens to interested stakeholders?
6. Are HMRC’s recent efforts in improving the administration of IR35 judgement cases working? Is more guidance and advice needed to aid individuals in judging the status of business transactions for themselves or should further resources be given to HMRC for compliance efforts?
7. Do businesses insist on the use of PSC’s? If so, should responsibility be placed on them rather than the worker to decide whether a business transaction falls within IR35?
8. Are individuals forced into the use of a PSC as a prerequisite for being considered for work? If so, what can be done to ensure that the use of a PSC is appropriate for the individual?
9. To what extent are PSC’s still used in the Public Sector? Should those engaged in public bodies and similar organisations be prevented from working through a PSC? If so, would the Public Sector experience difficulties in obtaining the skills and expertise that are needed?
10. What role do Umbrella companies play? To what extent are agencies encouraging individuals to enter into such structures?
11. Aside from the issues of tax and NIC, what are the wider benefits and drawbacks for the individual of using a PSC?

Those wishing to submit evidence can do so by including it in an editable electronic form, such as Microsoft Word, and e-mailing it to milnerp@parliament.uk. PDF format is not acceptable. You should also send a hard copy, duly signed, by post to Patrick Milner, Committee Office, House of Lords, London, SW1A 0PW. Copies can also be faxed to 020 7219 4931.