The Government’s latest proposals suggesting that ‘controlling persons’ have income tax and national insurance deducted at source – i.e. that they be taxed as an employee – even if they are working through a personal services company – will have a hugely detrimental effect on the professional flexible staffing sector. That’s the message from The Association of Professional Staffing Companies (APSCo) and the Institute of Interim Management (IIM). “Yet again, the professional staffing sector is in danger of suffering collateral damage in the Government’s broad brush approach to employment legislation”, says Ann Swain, Chief Executive of APSCo. “We are writing to Danny Alexander, Chief Secretary to the Treasury to vociferously oppose these proposals and working to build a coalition of opposition with other interested stakeholders. These proposals will affect company turnarounds, change management programmes and other business critical issues often undertaken by skilled professionals on a short term basis.”

One difficulty stems around the Government’s definition of a controlling person as someone who has managerial control over a significant proportion of employees and/or control over a significant proportion of the company’s budget. Additionally, the Government believes that there is an established and growing problem of individuals working through personal services companies to disguise employment, basing this supposition on the misguided belief that when IR35 was introduced 12 years ago, it was unusual for a senior/controlling person to be engaged through their own limited company.

“Assuming that all controlling persons are in fact employees is a fundamentally flawed argument as it takes no account of the professional interim market,” says Ann Swain. “Additionally, the frankly bizarre conclusion that the increase in individuals using personal services companies is related to a deliberate attempt at disguising employment status is also flawed. There has indeed been an increase in the use of personal services companies by professional contractors operating at a senior level – but this is directly related to the growth of the interim market. According to a recent IPsos MORI Survey the amount of business generated by the interim management sector has jumped 93% in the past five years which, given the Government’s agenda for growth, should be applauded rather than penalised.”

Ad van der Rest, co Chairman of the IIM agrees: “These proposals are ill considered, they attempt to address the wrong problem and they threaten to damage the UK economy by freezing out a vital community of interim executives who are just the sort of flexible leaders that are needed in the current climate. Senior interim executives undertake engagements, often in turnaround and crisis situations on finite contracts and carry out assignments as independent businesses moving from engagement to engagement. The implication that all senior interims are in some way trying to evade their legal obligations by hiding behind personal service companies is perverse and the notion that an independent professional providing business services should be debarred from their professional trade on the basis of their seniority is illogical and anti-business.”

“The Government also says that it wishes to achieve transparency around workers’ taxation issues,” continues Ann Swain. “But treating all senior workers as employees is nothing more than a blunt instrument with which to hit the professional interim market. APSCo has been in full discussions about the issue of employment status as part of the IR35 forum for the past 12 months – a sure sign that the issue is not as black and white as the Government would like to think. We believe there is an alternative way to achieve transparency which includes applying the current IR35 legislation correctly and consistently. The right to seek appropriate assurances about the tax arrangements of long term specialist contractors is already available in the private sector and is a course of action that has always been open to the Government in relation to the public sector. Consequently APSCo believes that there is no requirement for a change in the law.”