Contractor Calculator speak PSC Inquiry

During the provision of his evidence at the House of Lords Select Committee on Personal Service Companies (PSCs) inquiry, Dave Chaplin of Contractor Calculator has considered the ambiguous definition of PSCs themselves, and the illogical approach concerning the way IR35 investigations are executed and policed.

Chaplin’s establishing argument deliberated the existence of an actual definition for PSCs. He claimed that whilst there are industry ‘norms’, there is actually no such thing as a PSC, nor is it possible to objectively or legally define one.

“The closest thing to a definition is the consensus that PSCs are single person single shareholder limited companies providing knowledge-based services to business customers,” he explained. “In a contracting context, a PSC typically services one client at a time on a project basis.”

Chaplin drew reference to the common misconception that such businesses, often labelled PSCs, were commonly associated with consultants who provide their expertise in a time concise manner. These consultants would then charge their clients for their services based on an hourly or daily rate.  

Succeeding the presentation of oral evidence provided by the Federation of Small Business’ (FSB) witness David Ramsden, Chaplin supported their notion that HMRC unfairly targets knowledge-based one person limited companies.

HMRC’s perception that all said companies incorporate fundamentally for tax avoidance purposes was challenged by Ramsden during his session.

Chaplin adhered that, “HMRC incorrectly labels all knowledge-based workers who are not directly employed as disguised employees.

“This is a nonsensical concept invented by HMRC to try and raise more taxes.”

The usage of limited companies was also considered during the session, whereby it was given that hirers, quite rationally, wished to mitigate their threat against tax liability transfer and employment rights, therefore the use of such companies was widespread and standard business practice.  

Chaplin stated that though it was uncommon for individuals to utilise limited companies, it is standard for clients and agencies.

“There is also an alternative for knowledge workers who either do not wish to have the burden of managing a limited company or go not earn enough to justify running one, but which still offers client and agencies the same removal of tax and employment rights risk,” he offered, “They can join an umbrella company.”

Whether or not clients, if insisting workers using personal service companies, should be responsible for monitoring IR35 was a question raised by the committee.

Chaplin retorted that this notion could grind the UK’s economic recovery to a halt as loading the liability of IR35 on clients could prompt them to seek larger consultancies/offshore suppliers in favour of flexible services.

He asserted that, “The essence of the problem isn’t who should do the checks; it’s that the IR35 status check itself is cumbersome, subjective, and highly complex.

“It is the check itself that is the problem, not who does it.”

Chaplin concluded that he did not believe it was HMRC’s right to decipher whether individuals were employees or not, and that people should have the liberty to operate their business as they wished without being ruled retrospectively by the taxman at a later date.

 

By:Sam Greenwell

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