A tax expert at Deloitte has warned that government proposals on the taxation of ‘controlling persons’ will lead to “lots of squabbles between agencies and their clients”. 

The government proposals contained in a government consultation document, ‘The Taxation of Controlling Persons’, require private sector employers to put senior level contractors who they engage through personal service companies on their payroll.

The government’s proposals have already attracted much criticism.

And this has been added to by Mark Groom, a tax partner at Deloitte, and a member of the Chartered Institute of Taxation’s employment taxes technical committee, who tells Recruiter that the government’s solution as outlined in the consultation document could lead to increased tension and even rows between agencies and their clients.

As Groom explains, where “a person turns up offering their services for £1,000 a day” and the client agrees to pay it, the end user will be responsible for deducting tax and NI, and there isn’t a problem. However, he warns that where an agency is involved, the proposals risk straining the relationship between the contractor and the agency. 

“If the agency charges the end user client £1,100, does the end user pay the tax and the NI on the £1,100, which is more than the £1,000 earned by the contractor?”

And he adds: “How is the end user going to find out how much the agency paid to the contractor, without revealing the agency’s margin, which they may be sensitive about revealing?” The consultation doesn’t make that clear, says Groom.

“No one is going to be happy about this,” says Groom, “agencies are stuck between a rock and a hard place.” 

Furthermore, he continues, because of the additional hassle and cost involved in putting contractors on their payroll, “end users are going to be pushing back on agencies about whether the person is a controlling person or not, while agencies are going to say it is not our responsibility to tell you. There are going to be a lot of squabbles over whether a person is a controlling person or not.”

For more on the potential repercussions of the government’s proposed ‘controlling persons’ legislation, see the September issue of Recruiter out later this week.