Consultation document – the taxation of controlling persons
After the political embarrassment of government and quango heads being paid through personal service companies, HMRC is now seeking to put the burden of deducting PAYE on the engager (end client) where the worker is a ‘controlling person’. However, it does not look in any way to be an attack on the typical one-man contractor company, just higher profile individuals where the consultant, engager and HMRC do not seem to have applied IR35, which already exists to catch such scenarios.
This is a consultation about the engagement practices of controlling persons. It proposes that a provision is introduced to ensure that controlling persons have income tax (PAYE) and National Insurance deducted at source by the engaging organisation. Definition of controlling person is defined at Chapter 4 - "controlling the major activities of the engaging organisation".
The purpose of this consultation is to explore whether this is a necessary and appropriate way of achieving this aim and to test whether the provision is sufficiently targeted and without unexpected detrimental effects.
It does look like there were some public sector bodies that were ignoring IR35 and using individuals with PSC incorrectly, but introducing new legislation is only going to create more confusion for businesses already swamped with employment legislation. The consultation ends on 16 August 2012.