15 December 2006

But fears it tars everyone with same brush.

Brookson Ltd, the UK’s leading company service provider which supports 17,000 contractor members, has welcomed Gordon Brown’s recent announcements – but is concerned that generalisation by the Government could harm the industry’s reputation.

After 18 months, the Chancellor has finally published his consultation paper, "Tackling Managed Services Companies" which he first referred to in 2005. It confirms that those contractors who are genuinely self-employed can continue to work through a limited company and receive dividends.

Compliant services providers will also still be able to offer services to these contractors in the future, providing they give them financial and management control of their own personal service company. The risk of IR35 remains but providers, such as Brookson, which have HMRC approval will clearly have a head start within the new regime.

There can be little doubt, given the approach adopted by the Chancellor, that Government is concerned about compliance within managed service companies. The key drivers for the Chancellor would seem to be to ensure that the correct level of tax is paid by contractors working on a self employed basis, and that they are fully aware of the employment rights they are giving up.

Martin Hesketh, MD at Brookson comments, “We fully support the underlying purpose of the consultation paper and draft legislation, to ensure individuals pay the correct amount of tax, however disagree with the Chancellor’s broad brush approach and believe it may have undesirable implications for the Government. We would have welcomed the opportunity to engage with the Chancellor before he released this draft with a view to providing a more appropriate solution.

Martin continues: “At Brookson our contractors are compliant with IR35 and we paid 11,000 of these contractors on a regular basis last year, paying a total of £92 million in Corporation Tax, PAYE and NIC, plus £92m in VAT to the Exchequer. If the Chancellor's figures are correct then the amount of tax that should have been paid by all managed services companies in the sector would be over £4 billion. The Chancellor is proposing collecting £4.25 billion from 240,000 individual contractors versus £4 billion from 150 managed service companies. Would it not be more sensible to ensure the 150 providers were in fact compliant with IR35?”

“If the draft legislation goes through as it is written then the workload of an already over-stretched HMRC will vastly increase. This will be a key point raised in our response to the Consultation document.”

The challenge now for providers such as Brookson is to evolve, as those operators who have been in business for any length of time have already done many times before. The drive of the draft legislation is clear – the contractor needs to be a director of their own company, be compliant with IR35 and demonstrate some management and financial control over their company if they wish to continue to enjoy the benefits of limited company working.

Martin adds: “Brookson will continue to do what it does now – provide a compliant solution for the contractor which takes away the administrative burden of being self employed, while providing an essential service for HMRC. However, we strongly believe that it is in the interest of both the contractor and the HMRC, that we can continue to provide financial and legal support to our members too.”

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