Contractors are in the driving seat when it comes to choosing an ‘engagement mode’, and are not forced into using personal service companies (PSCs) by their clients. This was one of the clear messages delivered to peers in the latest evidence-gathering session of the House of Lords Select Committee on Personal Service Companies.
The witnesses from both the public and private sectors also repeatedly confirmed that PSCs are used by senior and professional workers who are hired on a project and short-term basis because they have specialist skills and experience.
This evidence session was the turn of the public sector and representatives from industry clients to undergo two hours of questioning by the Lords’ committee. However, there were no representatives from the financial or IT industries, consumers of a high proportion of contractor services.
The witnesses and the highlights of their evidence were as follows:
Public sector
Michael Coughlin, executive director of the Local Government Association (LGA), confirmed that, based on the limited information available, the use of PSCs in the local government arena is small and certainly not considered to be an issue. He also noted that “the sense that people are being pressed into such arrangements is not something we have come across”.
Tim Sands, deputy director for NHS Pay, Pensions and Employment Services was the lead of the three-person NHS team. He confirmed that for many senior NHS roles with a limited pool of candidates qualified to fill them, interim executives are in control and “will choose to be engaged on the basis they wish to be engaged on”. People at a “senior level are subject to IR35 rules so there is no tax advantage…but they are able to secure a higher rate than if they were on the payroll”, added Sands.
Gordon Fleck, policy manager at the Department of Health, was the lead on implementing the Treasury’s review of the use of off-payroll workers in the public sector. He is confident that the measures now introduced, at least in the parts of the NHS affected by the review, mean that NHS managers are receiving the assurance they need that those workers off the payroll are meeting their tax and National Insurance (NI) obligations.
Ralph Coulbeck, director of strategy for NHS Trust Development Authority stated that under normal circumstances he could see there being no reason why a trust would wish to employ director level people off-payroll. It would only be in circumstances when particular leadership skills are required and these could only be accessed by an individual operating via a PSC.
Private sector
Dr Alix Thom, employment and skills policy manager for Oil and Gas UK warned that operators and supply chain firms believe the use of PSCs by oil and gas contractors has gone too far, with up to 80% of workers in some areas using them. She claims that Oil & Gas UK’s members are now actively discouraging PSC use and trying to “entice” contractors back onto the payroll. But skills shortages are so acute and competition in the industry for talent so fierce that contractors are calling the shots.
Robert Fort, tax director at Amey, outlined explicitly and in detail exactly why contractors were an essential operational requirement for his business, and the circumstances in which they were used. PSCs were not used to disguise employment, although he called attention to three distinct drivers – tax efficiency, operational effectiveness and managing disproportionate employment rights entitlement risk – that make PSCs so prevalent and popular with both clients and contractors.
ContractorCalculator will be publishing further analysis of the latest evidence, which has identified that PSC use by contractors is legitimate and proportionate, in the coming days.