PCG notes the Treasury’s proposals to introduce a new tax treatment for managed service and composite companies, and will submit a full response to the consultation document.
PCG recognises that it is the Treasury’s prerogative to reform the law to remove opportunities for tax avoidance that offers an unfair advantage
- PCG agrees with the Treasury that by using a corporate form without accepting the full risks and responsibilities that go with being in business, workers using composite and other forms of managed service company do gain a tax advantage when compared either to employees or to contractors who do take on the full responsibilities of being in business, such as by using bona fide limited companies
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PCG welcomes the Treasury’s openness in seeking to change the law and explaining its reasons and intentions in doing so;
- PCG has long been critical of the use of terms such as "non-compliance" to erode the distinction between evasion and avoidance
- Managed service companies’ arrangements currently constitute avoidance and are therefore legal; PCG welcomes the direct approach taken here of introducing changes via statute.
It is crucial for the success of this measure that its scope is defined to include managed service companies but not to include freelancers and contractors who are genuinely in business; while we would of course not welcome an additional tax burden on the latter group, PCG’s preliminary reading of the proposals suggests that they are sound in this respect.
Also crucial is that the new measure is clear and straightforward for taxpayers; PCG’s preliminary reading of the proposals also suggests that they look promising in this regard.
PCG remains concerned, however, at the general complexity of the tax system. While the government’s reasoning in removing MSCs from IR35 and leaving it in place for other intermediaries is clear, it remains PCG’s position that IR35 is an unworkably complex measure that creates a needless and significant burden on small businesses. The very need to remove MSCs from its scope and treat them separately is an indication of just how hard to enforce IR35 remains.
PCG notes the proposal to pursue parties other than scheme providers for potential debts
- PCG recognises the reasoning behind this and also that it is an innovative proposal
- PCG raises no objection to this provided that contractors are not included within scope and that it sets no precedent for future tax measures.
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