Govt response to the House of Lords review of Personal Service Companies

The Government today published its response to The House of Lords Select Committee review of Personal Service Companies.

The report includes a number of recommendations including that HMRC carry out and publish an assessment of the current Exchequer protection figure – and of the costs that taxpayers incur when dealing with IR35.

The government acknowledged that there is hostility towards IR35 and said that HMRC will continue to work with the IR35 Forum to seek to raise contractors’ awareness of IR35 and dispel perceptions that HMRC is targeting those genuinely in business providing their services through a PSC.  The government also agreed with the view from the upper house that businesses would resist being made responsible for IR35 assessment and said it had no plans to make end clients responsible for IR35 where such businesses engage a PSC.

The response addressed more than just the use of PSCs as the House of Lords review had raised concerns about the use of umbrella companies. The government said it recognises the challenge to provide clear guidance and advice to temporary workers, the majority of whom rely on advice given by the businesses that place and pay them. This once again emphasises the importance of compliance from the umbrella operator, especially when signing up new employees.

Of particular interest is the government’s view that HMRC is aware that some umbrella companies are non-compliant, specifically through the misuse of dispensations issued by HMRC. It seems that this will now be the subject of greater scrutiny by HMRC and in the meantime the government will be consulting this summer on the Office of Tax Simplification’s recommendation that the dispensations regime should be replaced.

So whilst today’s response contains no real surprises it is clear that compliance must remain at the very top of the priorities for any contractor or agency engaging with a PSC or umbrella company.

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