I've fallen out of the habit of writing for this blog and have been telling myself for weeks to write a new post. The furore about senior public sector managers being hired through service companies rather than as employees is something I really ought to write about. So I have ... By posting a comment on their blog entry. Here's what I wrote:
I am an accountant and I work as an interim manager through my own limited company. Without getting too technical about it, the potential for reducing my tax bill is not that great, not since the Inland Revenue introduced IR35. Prior to that people working through companies could pay themselves minimal salaries and take the rest of the money as dividends, upon which income tax is paid but not national insurance. Even with that device, you have to pay corporation tax on the profit before you can take the dividends.
There are other possible tax advantages one could implement. Eg the company could employ the interim’s spouse or offspring and thus take advantage of two or more people’s personal tax allowances, reducing the interim’s total tax paid at the higher rates. Dare I say it, this is something MPs have been doing with office allowances for years.
I think I should also mention the reason such companies are attractive to employers, especially for hiring interims: it reduces their liability as an employer. As far as the council or other body is concerned they have a service contract. That means they are not responsible for employment duties such as the working time directive, they don’t have to make national insurance contributions, they don’t have to pay for holidays, they don’t have to apply their equal pay scheme to the position, they can fire the person without having a long winded investigation and disciplinary hearing, and so on. They also don’t have to allow the person to join the pension scheme and thereby they can save themselves the pension contributions.
The downside is VAT is payable on the service contract. Local government and ministries don’t worry about that because they can reclaim it from the treasury. The picture is different in the NHS and I’d be surprised if the witch hunt uncovered the same sort of arrangements in the trusts and PCTs.
To see the full blog post and other comments go to http://welovelocalgovernment.wordpress.com/2012/02/20/interim-judgement/#comments.