Personal service companies to face Select Committee

A Select Committee will probe the consequences of the use of personal service companies for tax collection, as part of a wider examination into PSCs in both the public and private sectors.

According to a motion agreed this week in the House of Lords, a specialist committee will be appointed to make recommendations about PSCs by March 31st 2014.

In fact, the Personal Service Companies Committee will hear up to eight sessions of evidence to draw up its recommendations, which ministers undertake to reply to within two months.

The inquiry raises the prospect that reforms to how one-person limited companies operate could be incoming, and would be in addition to any changes proposed by the IR35 Forum.

Calling for the inquiry, Lord Myners recognised that PSCs offer users tax benefits which are “generally seen as acceptable”, as long as the PSC is a “genuine one-person business.”

But he believes that “the system encourages abuse where long-term employees are paid through a personal service company solely to pay less tax than they would have if their income had been subject to income tax like a regular employee.”

The House of Lords’ Liaison Committee reflected: “Attempts have been made to tackle this abuse…the government introduced legislation to prevent the use of PSCs purely to convert employee income into dividend income to lessen their tax bill. These rules are still in place and go by the name IR35.”

Despite the legislation, the former City minister pointed out to the committee that a review by the Treasury last year found 2,400 ‘off-payroll’ engagements of staff in central government departments or at their ‘arms length’ bodies.

Referring to the probe by the Public Accounts Committee that followed, the Liaison Committee said it was “brief” and mainly focussed on the public sector.

Similarly, the Lords inquiry has been outlined as being only “short,” but it will examine PSC usage in the private sector as well, with the focus reserved on how such structures impact tax revenues.

Editor's Note: Further reporting and expert commentary on the PSC Committee -

Former accountant to lead PSCs probe

Lords want your input on personal service companies

Contractors are on the back foot in the PSC 'inquiry'

IR35 investigations surge to seven-year high

'Many PSCs have no idea about unpoliceable IR35'

Taxman's IR35 officials 'monitoring dividend levels'

Axing IR35 'would save contractors £843 a year'

Public sector backs leaving PSCs as they are

HMRC official 'undersold Lords on IR35 by £75m'

Tax isn't a limited company's raison d'etre, Lords told

HMRC reveals PSC dividends to be more than just monitored

UPDATE: April 7th 2014 --  PSC Committee Report published.

Lords 'slap HMRC in the face' over PSCs and IR35

Don't get your hopes up about the Lords' attack on HMRC

No quick fix for HMRC's misunderstanding of IR35

IR35 being scrapped or shelved? Don't hold your breath

UPDATE: June 9th 2014 -- Government Response to PSC Committee Report published.

Government responds to PSC Committee report

Government reply to PSC probe: industry responses

Osborne's reply to PSC inquiry 'a clichéd PR job'

Furious peers pummel Osborne's 'flimsy' IR35 reply

Printer Friendly, PDF & Email

Sign up to our Weekly Newsletter

Keep up to date with everything in the world of contracting.

 

Contractor's Question

If you have a question about contracting please feel free to ask us!

Ask a question