Thursday 5 March 2015

Personal Service Companies and Who Actually Pays Tax Confusion

Here


Now, clearly it cannot be 'right' to pay public servants through personal service companies whilst HMRC cracks down on the practice in private businesses under the IR35 rules.  (Which IMHO just highlight the stupidities of the massively over-complex UK tax code).


But to say that this will raise more money for the government is patently untrue.  All these people are employed by the taxpayer, so any tax they 'pay' is just a discount to Real Taxpayers.  It is just money going round in circles.  True, that if these people have less tax taken off their pay, then this 'extra' money in their pockets - or some of it - 'escapes' from the government.  But since it will no doubt be used to buy goods and services - which are themselves taxed - a lot will still 'go back' to the government.


FWIW I know for a fact the Financial Ombudsman Service employs people through Personal Service Companies.  I have fairly concrete suspicions that the Financial Catastrophe Authority does as well.  So the FSCS will also probably be at it.  These are not outside consultants (like another friend of mine is for the ad hoc work he does for the Bank of England) but people sitting in their offices doing 9 to 5 work, well activity, for them.

9 comments:

Mark Wadsworth said...

I know somebody who worked on a contract with HM Treasury and she said that half her colleagues used PSC's. FFS.

ThomasBHall said...

I know loads of FCA and PRA contractors working through PSC's. I know one guy who has been on £600 per day now for 8 years first at FSA, now PRA- to do a pretty low level analyst job.

Lola said...

MW & TBH
Tell wee Dougie?

Dinero said...

There's something more fundamental at play here. If the government think that changing someones employment status to self employed decreases the overall amount of tax they pay compared to the very same person doing the very same job as an employee then that means that employees must be getting taxed to much or the self employed are paying to little. In their system There is no official "self employment discount".

Jim said...

I have tried to explain that endlessly to people who work in the public sector, that they don't pay tax as such, at least not in money.

The way anyone in the public sector pays tax is in time.

Its the easiest way to explain it. If you work 5 days a week and you have a "tax rate" of 20% (ignore NI and other taxes for simplicity) then in reality all that happens is you are paid for 4 days by the private sector tax payers you work the 5th day "unpaid" in order to "pay your tax" Your pay slip may give a top line figure, but it was never really added and taken, it was just never added.

Dinero said...

While its true that they dont pay tax from the sense of accounting and its true that government employment policies have consequences for the relative spending power of individuals , it doesn’t mean that they are getting a free ride from the perspective of human toil, a worker in the public sector and a worker in the private sector doing the same job for the same same amount of hours for the same pre tax figure receives the same pay after tax. And the productivity of both sectors in aggregated and consumed by both sectors across sectors and within sectors.

Lola said...

D Indeed. But that wasn't strictly the argument I was making. Clearly some state employees - teachers say - are engaged in 'production'. But the tax they pay, they don't actually pay, in the sense of adding to the governments money.

Dinero said...

If the local council collects some council tax and pays a bod who pays tax to the HMRC then maybe it that case it does!

Bayard said...

"or the self employed are paying too little."

Well the obvious way to get round this problem is to alter the tax code so that those who are employed pay the same tax as those who are self-employed, rather than wasting time chasing up and sacking NHS managers. But that's not going to happen, because it would upset the cronies.