In 1999 the government introduced IR35 legislation in an attempt to clarify the position of intermediary companies in regulatory and tax terms. Since then, Personal Service Companies (PSCs) have become a popular way for professional freelancers to structure their affairs and provide their services to other companies, partly driven by a pressure from clients for freelancers to operate in this way. Under this model, individuals operate as contract workers through the intermediary of an incorporated business. Over the past 18 months, these kinds of organisations have been subject to intense scrutiny and a series of regulatory changes. These changes are intended to clamp down on instances where an employer/employee relationship is instead structured as a client/contractor one, but also have the effect of threatening to make this form of work less viable for legitimate professional freelancers. Despite such regulatory changes, relatively little is understood about PSCs and their role in the economy. In this context, a new report by Oxford Economics sheds light on the economic activity of this group.
1 House of Lords Select Committee on Personal Service Companies, “Personal Service Companies “, in UK Parliament <http://www.publications.parliament.uk/pa/ld201314/ldselect/ldpersonal/16...
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Economic impact in the public sector
In early 2016, Government outlined proposals to reform the way that public sector bodies assess and tax the contractors who work for them. HMRC estimate that 26,0002 contractors who operate through their own company (PSCs) will be affected. This is the latest in a series of policy changes affecting PSCs. Faced with the prospect of higher taxes, legal uncertainty and being taxed as an employee without receiving employee benefits, contractors will be less incentivised to work in the public sector, undermining its capacity to deliver and driving up costs. IPSE believes these changes have the potential to be very damaging. See this article in this issue of the magazine to find out more on these proposals, and how IPSE will be combating them.
2 HM Revenue & Customs, "Off-payroll working in the public sector: Reform of the intermediaries legislation" (Consultation document, 2016).