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The government has dropped plans for measures aimed at senior executives who use personal service companies to reduce their tax liabilities when taking on full-time roles in public bodies.
A proposal to tax at source ‘controlling persons’ who operate through their own intermediaries will not go ahead, it was announced in the chancellor’s autumn statement document.
“This is because HMRC’s new approach to policing IR35, along with the measures introduced in the public sector this year, are sufficient to prevent the loss through disguised employment in this way,” according to section 2.103.
The change of plan follows a consultation launched after a review conducted by the chief secretary to the Treasury, Danny Alexander, found that 2,000 leading public officials were being paid off-payroll and subject to corporation tax of around 25% rather than income tax of 50%
John Whiting of the Chartered Institute of Taxation (CIOT) applauded ministers for “consulting, listening and acting on the responses”.
He added, “The government is entirely correct in its wish to ensure that those running government agencies and other public sector bodies are paying their fair share of tax – but that can be met using a combination of enforcing existing legislation and the new rules for central government appointments.
“This is a practical and proportionate way forward. Legislation requiring deduction of PAYE at source for payments to intermediaries would have added unnecessary complexity to the tax system and would have added to administrative burdens in the private sector who were not the causes of the problem,” said Whiting.
