House of Lords criticises Government’s PSC response

The House of Lords Select Committee has just issued some rather choice words on the Government’s recent personal service company consultation response.

The validity of using personal service companies by contractors and freelancers been a serious hot-button issue lately, especially since there has been some seriously high profile cases of tax avoidance by using PSCs. The Government has sought to clamp down on the practice of course, holding a consultation on what to do about the problem, but the House of Lords has taken issue with much of the official response.

Committee chair Baroness Noakes was particularly acerbic in her response, remarking that she had felt the Treasury has taken the consultation and more or less completely disregarded the findings. She found the response actually the exact opposite of encouraging, she said – especially since the Government more or less flatly refused to answer the posed question as to whether the current tax system is really fit for use in an environment that it was never designed for – especially with the prevalence of umbrella company contractors and other self-employed interim workers in today’s economy.

For what it’s worth, I think the Government really let the side down on this one. The committee recommended that there should be better guidance on what constitutes employment versus working as a contractor, and that there should be special cases for low-paid contractors using intermediary companies, yet the Government more or less dismissed these recommendations outright. Still, despite the complete and seemingly utter incompetence of the Government’s response to the PSC consultation, there could be some hope on the horizon for contractors who are justifiably afraid of being targeted as a tax dodger for using a personal service company in the future; there should be some minor changes to existing guidance that may make things at least a bit more clear.

While it’s not much, it’s obviously better than nothing, or at least I think so. Still I’m more or less in agreement with the House of Lords in that a more nuanced and complex approach needs to be adopted in order to stop people from abusing PSCs to avoid paying their fair share of tax while still allowing those who want to use a personal service company legitimately without fear of unwarranted reprisal by an overzealous Government.

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