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The limited appeal of limited companies

January 22, 2016

As the implications of the 2015 autumn statement become clearer, many assume that the chancellor's attack on contractors - specifically the restriction of relief on travel and subsistence expenses may drive contractors towards using a limited company. If only it were so simple.

 

 

Quite apart from the fact that not everyone will be suited to a limited company (the worker might not be allowed to be a company director, may have a regulated role in which the end client specifies payment by PAYE, or they simply do not want the hassle), the government's intense focus on the contractor market has meant that any so-called "Indian Summer" for PSCs is likely to be short-lived.

 

As Kevin Barrow of legal specialists Osborne Clarke warns: A surge in PSC use is likely to only serve to focus the attention of HMRC and the chancellor on contractors using this particular structure, whether genuinely in business for themselves or merely seeking a tax advantage.

 

As is often the case, the government has a range of sledgehammers to break what it views as a particularly errant nut. It can be seen already from the changes to dividend taxes that PSC contractors have not escaped the draft legislation entirely, and whilst further changes to IR35 are some way off (for now), it's fair to assume any spike in PSCs would precipitate the timetable for any such changes being brought forward. 

 

Under the targetted anti-avoidance rules, recruiters and businesses must also be wary of "making arrangements" or "shoe-horning" contractors into PSCs. 

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