Government plans to tax interim managers as if they were employees rather than contractors could damage the management of businesses and public sector organisations, says Interim Partners, a leading provider of interim managers.
HM Revenue and Customs (HMRC) and HM Treasury have announced plans to tax senior individuals working for organisations through intermediaries*, which is the way that many interim managers operate, as if they were on payroll, even though they are self-employed. Interim executives are highly experienced individuals, typically senior executives just below board-level, who are recruited on a short-term basis. The Government’s proposals would affect: all interims working in the public sector working through personal service companies ‘controlling persons’ who ‘direct the activities of an organisation’ and ‘are engaged at a senior level’ in the private sector. Doug Baird, Managing Director of Interim Partners comments: “Forcing self-employed interims to pay tax as though they are employees will discourage senior executives from leaving their permanent jobs to deliver their skills as self-employed interim managers.”
“Interims do a vital job stepping in at short notice to replace CEOs and other directors, often in crisis or turnaround situations. Interim managers take on projects that just can’t be dealt with properly by permanent staff.” “Reducing the overall number of interims would hurt UK plc: it could seriously restrict the number of quality interim staff available to the UK’s public and private sectors. That is not in the interest of the public or private sectors.” “This is another example of the Government damaging the UK’s competitiveness by reducing the flexible delivery of skills across the UK economy – this time, senior management skills.”
Crackdown on tax avoidance or tax grab by HMRC? Says Doug Baird: “The clamour over suspected tax avoidance has led to a degree of scapegoating. Attacking the private sector as well makes these plans look like a tax grab masked behind a smokescreen of a crackdown on tax avoidance. I don’t think businesses’ best interests are at the top of the Government’s priorities here.” “I’m worried that the Treasury is using the public furore over ‘off payroll’ workers in the public sector as an excuse to go after a tax
set-up with which it’s never been entirely comfortable.” Interim Partners points out that there are already very effective rules in place to prevent tax avoidance by contractors, including interim executives, in the form of IR35.
Doug Baird continues: “Interims should not be treated as payroll employees, because they just aren’t the same. They do not have the legal protections that permanent employees have. Very often, interims have little job security, with their work coming in peaks and troughs. Interims often have long gaps between short periods of employment.” “The definition of ‘controlling person’ is vague enough for it to affect more interim managers than the Government might expect.” “Highly experienced, highly professional managers that are brought in to lead a business through a period of change, or while a long-term appointment is being considered, might end up being trapped by these proposals. These kinds of interim managers do not operate like other employees and the Government can’t apply the payroll cookie cutter to them.”
Interim Partners argues that interim managers working through a personal service company are being unfairly targeted in the current climate of tight public finances. Comment Doug Baird: “The PAYE and National Insurance systems are not always appropriate for people in these situations: the two taxes are decades old and were set up in a working world when people tended to stay in one job for long periods of time. Interims bring a huge amount of value to the public sector. They are experts in finding efficiencies, managing change, and they have often worked in a variety of management roles outside of the public sector.
These are exactly the kind of qualities needed in the public sector at the moment, but by penalising interims the Government may find that it is shooting itself in the foot by making it harder for the public sector to attract the right kind of talent. It may be popular to knock consultants and contractors but when it comes down to it, using experienced interims to drive through efficiency measures in an organisation can be very cost effective.”
Baird concluded: “The Government need to go back to the drawing board and come back with a much more specific set of proposals. The industry really needs to be listened to, and hopefully the current consultation period on the proposals will be constructive.” The HMRC and Treasury consultation – ‘the taxation of controlling persons’ – began on 23 May 2012 and closes on 16 August 2012.