The First Personal Service Company Session

Personal Service Companies often stimulate controversial talking points amongst society. On 12^th November earlier this year, adept individuals were appointed to ‘The Select Committee on Personal Service Companies’ to consider the consequences of the use of PSCs for tax collection.

Their first witness session served as a stage for common issues and ambiguity to be put in the spotlight and faced by HMRC, as they attempted to eradicate any shadows of doubt.

These attempts fell slightly short however, as the vague facts and figures offered by HMRC officials during the session did not particularly bolster a reassuring presence in the debate.   

As it transpires, HMRC do not routinely estimate the size of the PSC population, and only offers an estimation of 200,000 existing at present. In 1999, when IR35 was introduced, they then estimated 90,000 existing PSCs.

When asked for the speculated reasons concerning the significant ascent of the PSCs, HMRC said it was “simply a reflection of the way the UK labour market is evolving, primarily for commercial reasons but, it also has to be said, partly to avoid or mitigate tax.”

This being said, HMRC assured that they “don’t consider a PSC as inherently risky; there are good reasons people want to work that way.”

The succeeding duration of the session accentuated more vague facts and figures by HMRC, as their mediocre assurance continued to plague further topics.

Provoked by their admittance of a “broad-brush estimate” of the amount of PSCs currently operating, The Chairman of the session questioned how many of the proposed companies applied IR35. His query generated a lacklustre response from the officials:

“Again, we have not recently analysed the number of companies in that population to which IR35 is likely to apply.

“What we at HMRC need to do is target our compliance activity towards the group where we think their relationship with the client is effectively an employment relationship, so all their contracts will be within IR35.”

When urged to provide any rough idea of the figures, they justified their inadequate insight by saying that “for operational compliance reasons, we do not routinely estimate how many personal service companies we think IR35 applies to.”

Unconvinced by HMRC’s insufficient information, Lord Myners honed in further on the matter. He asked if any conclusion could be drawn from the fact that HMRC did not have a clearer sight on the matter. He challenged whether this was because it was not that important when instigating an IR35 investigation, or whether the data would prove to be too difficult for the Customs.

Rowena Fletcher, of HMRC, assured that they targeted high risk cases because estimating the number of PSCs - and to which IR35 applied - would not help to achieve the risk estimate.

In addition, the issue of general IR35 awareness was regarded with concerned contemplation by most attendees, and it was generally agreed that the awareness of IR35 had the potential to be vastly improved.

Lord Palmer of Childs Hill made the plausible suggestion that upon a company registering, Companies House could issue information to the individual as opposed to the individual independently seeking information. The current situation relies on the concerned individual learning about IR35 matters by their own, unaided means, but this behaviour is completely unrealistic if they have no prior idea of the legislation’s existence.

The initial points of discussion hosted by the enquiry have already unearthed a wealth of issues to be further debated and developed. Further sessions, set to be scheduled into the New Year, will evidently be of utmost interest and importance to any individual operating in, or seeking information concerning, Personal Service Companies.