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Controlling Persons consultation - making the argument for contractors to Danny Alexander

The Controlling Persons consultation issued in May set out proposals to introduce legislation which will force businesses and organisations that engage ‘controlling persons’ to put them on their pay roll and make deductions from them for PAYE and NI. The REC has already responded robustly to that consultation.

It has become increasingly evident over the last couple of weeks that agencies supplying contractors into the public sector are being subjected to requests from their clients to adopt changes to their contracts, to address issues raised in the Treasury’s ‘Review of the tax arrangements of public sector appointees’ which reported back in May.

The current difficulties stem from the fact that the Treasury acknowledged that any new legislation governing  Controlling Persons cannot be implemented quickly and the Treasury therefore set out that interim measures would be put in place for government departments that engage contractors to address the tax compliance issues raised in the Review.  Specifically, the Treasury stated that:

“… details of the contractual provisions to be included and the assurance process for departments to carry out will be finalised and implemented within three months of the publication of the review.  Departments and their arm’s length bodies will carry out these recommendations in relation to all new contracts or contract renewals. Once the right to assurance is placed into contracts, departments will exercise this right in a cost effective manner, according to the risk presented by different cases.”

Three months down the line and there have been no details released of any contractual provisions or an assurance process. Yet it is clear that some government departments are in any case actively looking to make changes to their arrangements with contractors and agencies that supply them to achieve the Reviews aims. Without any central guidance from Government, this is happening in a sporadic manner with some departments pressing for changes which are completely unnecessary. Such steps may only serve to deter contractors from working in the public sector.

The REC's campaign on this issue has involved building a strong collective voice with other leading business organisations culminating in a joint letter last month to the Chief Secretary to the Treasury, Danny Alexander. This argues against a disproportionate regulatory response and underlines the crucial benefit to employers of being able to quickly deploy highly skilled executives on short-term contracts.

As well as pushing back on proposals in the recent consultation, the REC has called on the Treasury to issue some urgent guidance to public sector employers to avoid some of the knee-jerk responses that we are starting to see on the ground. It is crucial that any additional provisions that are adopted to give engagers assurances that contractors are operating in a tax compliant way are proportionate and don’t lead to adverse and unintended consequences.

These are the key messages we will be taking forward with senior officials and new Treasury Ministers following this week's reshuffle.