At least, that’s the implication of Paragraph 2.207 in the Budget red book:
Personal service companies and IR35 - The Government will introduce a package of measures to tackle avoidance through the use of personal service companies and to make the IR35 legislation easier to understand for those who are genuinely in business. This will include:
- strengthening up specialist compliance teams to tackle avoidance of employment income;
- simplifying the way IR35 is administered; and
- subject to consultation, requiring office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged. (Finance Bill 2013)
It may come as a surprise to self-employed consultants, interim managers and contractors to learn that they are not ‘genuinely in business’, especially when they have to go out and find new assignments after each one ends, but perhaps this reflects the ill-informed nature of the whole debate.
The impetus for this proposal started with a public sector fat-cat story about a civil servant avoiding his tax by working through a company. Of course, he wasn’t a civil servant, he was an interim manager on a fixed-term contract but by the time that detail had come to light no-one was listening. As with all witch-hunts, no-one is interested in the finer points. Anyone working for public sector organisations and charging fees was fair game.
So, true to form, the government is responding to tabloid outrage by ‘doing something’ and that something could well be a total ban on any interim managers working anywhere. A draconian solution to a problem that barely existed.
If the above wording comes into force, anyone in a role which is ‘integral to the running of an organisation’ would have to be on the payroll. You could argue that managers at all levels fall into that category and it would certainly include the top few tiers of any organisation. This would therefore effectively ban companies from getting interim managers in to cover senior roles. Even temporary managers would have to go onto the payroll.
As I’ve said before, there are good reasons for employing interim managers. They are used throughout all sectors because the arrangement works for the employers and the interims. Forcing companies and public bodies to put people on the payroll, and give them all the benefits and job security that goes with it, would just add to these organisations’ costs and administrative expenses.
Which is probably why it won’t happen. Companies and business groups of all sizes will kick up a fuss about this. The consultation will almost certainly tell the government to back off. Hopefully, that will help George and Danny to understand that interim managers can be useful to employers, so it would be just as silly to impose this measure on public sector organisations.
This proposal is craven populist nonsense. It is a knee-jerk response to a very small problem. There are a few interims who have been in organisations for too long and who should be on the payroll but for most, these arrangements make perfect sense. For a government claiming to be against red-tape, restricting the use of interim managers would be a very stupid, and very unpopular, thing to do.
Hat Tip: Mervyn Dinnen for telling me about this. I’ve been way too busy to read much about the budget this past week.
Of course false self-employment should be tackled and the laws already exist to do so, but the contribution the overwhelming majority of legitimate freelancers make to the flexibility of the UK labour market and the economy as a whole should not be hampered.
At least someone on the government side can see beyond the screaming headlines.