Following controversy over tax avoidance by some senior civil servants, and a dictum from the Treasury that those engaged to work for the government must be ‘on payroll’, the scope for recovering ‘proper levels of tax’ from highly placed individuals in the private sector recently took a step closer.

The ‘Controlling Persons’ consultation involves individuals that work ‘off payroll’ to control large numbers of staff, or parts of the budget in the company for which they work. Taking on board the government’s objectives, and the concerns of business, the Association of Recruitment Consultancies (ARC) has proposed in its response that the government could allow a two year “qualifying period” during which normal company tax rules will apply, with any change to the tax rules applying thereafter. “The ARC proposes a fair period of two years, after which it could possibly be argued that the temporary nature of the role has effectively changed, justifying a change in tax status”. This is in line with the approach taken by current tax rules on expenses for temporary placements.

Adrian Marlowe, chairman of the ARC, which represents agencies who introduce and supply senior managers to hirers, explains “We believe that generally where someone is hired in an interim or senior temporary role (which may fall into the category considered under the consultation), they are not employees, and have no intention of being so. The risk of ‘disguised employment’ is low.”

Even after the suggested two years, the ARC argues that if the work is demonstratively project work, and the individual is genuinely taking risk, investing in necessary skills and support training, and accepting liability on an ongoing basis (in other words, still working as an independent engaged expert), it would be quite wrong if the advantages provided by standard company tax rules (which are designed to encourage inward investment and growth), are removed; “We are concerned that if enacted, the current proposals could destroy real businesses.”

The ARC also criticises the plan to apply the new regime to managers who are supplied by agency providers. Marlowe says “as those managers are paid by the agency or interim provider how could the proposals, which require the hirers to deduct tax at source under the PAYE scheme, work? Hirers are invoiced by the agency for the services of the manager, and have no payment relationship with the individual. An attack on payment arrangements could only damage the supply industry at this level.”

There may be some instances of ‘inappropriate’ tax avoidance, but the ARC hopes that the government gives fair consideration to the overall picture rather than indulge in a knee jerk reaction to perceived ‘moral’ pressure. Whilst the arguments rage, all that senior temporary executives can do now is hold their breath!  Details on further ARC campaigns are online.

This article ‘Controlling Persons consultation closes; the Association of Recruitment Consultancies view’ first ran on The ARC website on August 24th 2012.