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.
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 -
UPDATE: April 7th 2014 -- PSC Committee Report published.
UPDATE: June 9th 2014 -- Government Response to PSC Committee Report published.