Is the taxation of ‘controlling persons’ a serious threat to the interim management market?

The Government has produced a consultation document proposing that all “controlling persons” at an organisation should be on the payroll. This will include both private and public sector organisations. The Government is effectively planning to ban the use of limited company contractors in situations where they would be acting as “controlling persons” in a business.  The definition of a ‘controlling person’ is someone who has managerial control over a significant proportion of the workforce and / or control over a significant proportion of the organisations budget. There lies the problem.

What do they mean by ‘significant proportion’ and who will do the measuring? Fundamentally there is nothing wrong with the description of a ‘controlling person’ but in this context the Governments proposal of defining what constitutes a ‘controlling person’ leaves the interpretation open to misunderstanding.  By the very nature of what Executive Interims do they are more often than not going to have managerial control / budget control over a significant proportion of the organisation. After all, if the organisation is going through Change, Transformation, Restructuring, and Turnaround etc. they need to be able to bring in some external help with someone who can lead them through this business critical time. 

To propose to put all ‘controlling persons’ on the payroll is going to have a detrimental effect on the interim management sector and seriously threaten the livelihoods of a £1.5b industry that doesn’t just end with the individual engaged to do the work. Secondly if, as an industry, we come up with an alternative (the IMA are putting a response forward) there needs to be clear parameters about who should and who shouldn’t be included.
  
In these times don’t organisations need the flexible resourcing options that interim management provides? While we find ourselves in the midst of recession with what continues to be a challenging economic climate, the timing, quite frankly couldn’t be worse. The threat of putting Executive Interims on the payroll will possibly provide both clients and interims with enough reason not to bother. It might on the other hand fuel the ‘in betweeners’ or fixed term contracts market as they take the benefits and pay tax accordingly but what does this mean for the professional interim?

Or is this a knee jerk reaction by the Government following an embarrassing situation with the Ed Lister case? He was the CEO of the Student Loan Company and transpires he was engaged for a 3 year period on a daily rate. This coupled with other high profile tax avoidance schemes has meant the media have got hold of this and political rather than economic forces are taking hold. It would seem the media hype has backed the Government into a corner because when it’s your own front door…

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News posted: 07/08/2012 by Steven Wynne