1. No category

Interim management profession
threatened by regulations
An open document highlighting the threats to the interim
management profession posed by regulation changes
under the ‘Review of the tax arrangements of public sector
appointees’ and HMRC ‘Controlling Persons’ consultations
26th July 2012
With a foreword from the
Interim Management Association (IMA)
Foreword
Many organisations across the public and private sectors have recognised how vital it is to have
the ability to quickly deploy highly skilled interim managers on short-term contracts to deliver
specific results immediately and effectively. As a result the market for their skills is growing
significantly and is now worth £1.5bn - in fact this is an industry where Britain leads the world.
However, the Government’s review of contractors in the public sector and HMRC’s ‘Controlling
Persons’ consultation are together a huge threat to this thriving industry. It will not only damage the
productivity of organisations who rely on the skills of interim managers, but it could also seriously
undermine the competitiveness of the UK's flexible labour market.
Although there have recently been some high profile cases of individuals in
the public sector using personal service companies to circumvent tax
obligations, these cases are not genuine interim assignments and do not
reflect the nature or motivations of true interim managers.
People who have chosen a career in interim management are not looking
for a permanent job or trying to avoid tax. Rather, they are top level
executives who have made a career choice to become independent
consultants, and they accept the risks and rewards of doing so. It is this
very independence that allows them to make strategic, dispassionate
decisions that benefit the organisations which hire them.
If the proposed changes are implemented, we know that many interim
managers will see little benefit in taking a short-term employed contract and
will instead opt for a permanent job in the UK or assignments abroad. If this
happens we will lose a vital resource and talent pool for UK organisations.
Jason Atkinson
Chairman
Interim Management
Association (IMA)
The Interim Management Association (IMA) represents the majority of
established and leading Interim Management recruiters in the UK market.
The Institute of Interim Management is delighted to have Jason Atkinson
and the Interim Management Association’s (IMA) support for this document.
It is very gratifying that so many interim partner organisations, on-line forum
members, and groups of concerned individual interim managers have been
so collaborative in their wish to argue this case so constructively.
We are concerned about the threats implied in the proposals, which we
hope with reasonable and logical discussion may be averted. Interim
management is a genuine force for good in the economy that must not be
allowed to wither as an unintended consequence of regulation.
The Institute of Interim Management (IIM) promotes, represents and supports
professional interim managers & executives in the UK.
Ad van der Rest
co-Chairman IIM
2 Executive summary
Headlines
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The professional livelihood of interim managers is threatened by plans in the Danny
Alexander off payroll tax review and HRMC ‘Controlling Persons’ consultation.
The proposals aim to address tax gross offenders on the margins of the interim
management community by carpet-bombing everyone with over-regulation.
The Institute of Interim Management urges the Treasury and HMRC not to rush to
judgment with blanket measures, but to adopt a more business-aware approach.
Professional interim managers and executives greatly benefit UK plc. A more thoughtful
approach to regulation will avoid harming this valuable profession.
Background to the Review
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Under Chief Secretary to the Treasurer, Danny Alexander, a review into the tax and
working arrangements of those operating off-payroll in the public sector was announced
in the 2012 Budget Red Book and has now started.
The review was triggered by controversy over the way in which Student Loans Company
Chief Executive, Ed Lester, was paid. Mr Lester was engaged as Interim Chief Executive
in May 2010 to address months of chaos at the SLC. The matter of controversy is that he
was then additionally engaged for a further two years, but with the payment
arrangements continuing through his Personal Service Company (PSC) off payroll.
The introduction to the “Review of the tax arrangements of public sector appointees”
(May 2012), which we shall refer to as ‘the Review’, proposes that (1) the most senior
officials be on the payroll, that (2) those off-payroll must give assurance that they are
paying the right amount of tax and that (3) these measures will be reviewed in May 2013.
HMRC has initiated a consultation about ‘The Taxing of Controlling Persons’, which
proposes that all ‘controlling persons’ (including interims) be placed on payroll.
Interim managers and executives
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Interim management is the provision of effective business solutions by an independent,
board or near-board level manager, over a short-term time span, to provide specialist
and strategic interventions solving problems and delivering results.
Professional interims are invaluable to the UK economy. The industry is worth £1.5bn
and is one where the UK leads the world as a beacon of senior business flexibility.
88% of interim professionals operate through genuine Limited Personal Service
Companies (PSC’s), which meet their tax and NIC obligations. As businesses in their
own right, they offer independent expertise and deliver results.
The average engagement lasts 7.3 months. 69% of all assignments are completed within
12 months. Interim professionals bill on average 155 working days per year.
Impact of the proposals
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At a time when austerity measures mean less manpower and often greater demand on
public sector services, high level interims with a track record of quantifiable achievement
remain a vital resource for government both nationally and locally.
The Review paints all off-payroll workers as tax avoiders. Interim managers operate as
genuine businesses that engage at speed, implement, then leave. As off-payroll workers
they face being captured indiscriminately by the proposed regulations.
3 The review is triggering interim cancellations and the use of Fixed-Term Contracts
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The review threatens budgetary fines to public bodies that engage individuals for over
£220 per day and over 6 months in duration, without correct tax assurance. Interims and
agencies are already reporting that public sector bodies are cancelling interims in midassignment. This is particularly affecting more senior interims whose rates are rightly
higher and where assignments usually take longer than 6 months.
Public sector assignments are increasingly being offered as Fixed-Term Contracts on
either the department or agency’s payroll. Most professional interim managers will not
operate this way, as these contracts are unviable for professional interims. We urge that
centralised procurement managers recognise and accommodate the value of interims.
The net effect of these practices is that skilled interim managers are being lost at the
same time as key requirements are being sourced from a pool of redundant employees,
who may lack the skills and expertise of a career interim manager.
A PSC is the correct tax vehicle for professional interim managers
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The Review proposals repeatedly taint Personal Service Company (PSC) owners as
suspected tax avoiders. Professional interim managers and executives provide their
services as a career, not as a tax dodge. The financial risks of repeated periods without
work following assignments, alongside the pressures and costs of sales and marketing to
secure new work, are risks that employees would simply not countenance. PSCs are the
appropriate tax vehicle for these risk-laden businesses.
Tax assurance guidelines should recognise correctly constituted PSCs, operating as
genuine interim management businesses, as meeting a valid tax assurance test.
Forcing senior interims to be employees damages interims and clients alike
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The ‘Taxing of Controlling Persons’ consultation proposals appear fundamentally flawed.
Proposing that all public and private sector Controlling Persons should be on the payroll
as employees, even those senior interim managers and executives who are successfully
trouble-shooting and improving businesses and public bodies during an appropriately
short assignment, is simply perverse. Not only are these proposals illogical and hugely
costly, in terms of providing rights and benefits that the interims do not require, but also
they may compromise the interim’s professional and independent objectivity, particularly
on engagements with sensitive, legal or financial implications, where such professionals
are brought in to address suspect practices and to supply independent scrutiny.
In a survey of >2,000 interim managers (06-07/2012), two thirds (61%) on controlling
engagements find this proposal to be so unacceptable that rather than become fixed
term employees they would instead return to permanent employment, move to
management consultancy or work internationally. Interim managers and executives
make a significant contribution to the success of businesses in the public and private
sectors; their removal from the business scene would truly be UK plc.’s loss.
The professional interim management community urges the Treasury and HMRC to not
damage legitimate interim professionals through these blanket measures, however well
intentioned.
Ad van der Rest, Hilary Husbands, co-Chairs, Institute of Interim Management
Contact: www.iim.org.uk / [email protected] / http://www.iim.org.uk/threat
4 Contents
Page
Foreword from the IMA
2
Executive Summary
3
Introduction
6
The interim management landscape
8
Interim managers in the public sector
12
Policy proposals
14
Recommendations
17
References
18
Appendix I – Survey data
19
5 Introduction
The Institute of Interim Management (IIM) recognises that people who conduct their work
arrangements with the practices and benefits of employees should be taxed as employees.
The public sector needs to demonstrate the highest standards of integrity. When questions
were raised about the tax arrangements of senior public sector appointees, Danny
Alexander, Chief Secretary to the Treasury, announced a review, which was led off by the
“Review of the tax arrangements of publics sector appointees” document, published in May
2012. [Ref 1]
However, blanket measures to address suspected tax avoiders should not be allowed to
damage the interim management profession. This community of skilled and expert interim
professionals is a significant force for good in the UK economy. Those who operate
businesses without the benefits and rights of employment but with the financial risks of not
earning should be treated and taxed as small business.
This open response highlights the issues, the threats to interim managers, and the potential
for damage to the public sector and the UK economy.
Triggering events
The controversy that triggered the review related to the pay arrangements of Student Loans
Company Chief Executive, Ed Lester.
In outlining the controversy, we are not taking personal issue with Mr Lester. The Business
Secretary Vince Cable is on record insisting that Mr Lester [is] ‘an exceptionally useful
individual who has helped to turn round [the Student Loans Company]’.
Mr Lester’s engagement as an interim Chief Executive in May 2010 was not controversial.
The Student Loans Company had suffered months of chaos and was in urgent need of
immediate attention: Something interim managers are very good at delivering.
Engagement on a day-rate via an agency for a few months is perfectly usual for an interim
executive. The interim requires neither employee benefits nor employee rights.
Given the successful turnaround, the Student Loans Company sought to retain Mr Lester’s
services for a longer period. We are not privy to the contractual details, but what appears to
have happened is that an arrangement between a normal ‘open’ interim contract and
permanent employment was struck: A two-year contract, but with fees continuing to pass
into Mr Lester’s Personal Service Company (PSC) off payroll.
There have doubtless been many cases where similar deals were struck that did not cause
controversy, but in the current economic climate, and with a high profile assignment raising
the matter to public view, an urgent government review was inevitable.
The 2012 Budget Red Book announced the introduction of a measure “requiring office
holders/controlling persons who are integral to the running of an organisation to have PAYE
6 and NICs deducted at source by the organisation by which they are engaged”, an
announcement which would become the ‘Taxing of Controlling Persons’ consultation. [Ref 2]
Whilst the controversy was of the familiar tabloid format ‘fat cat avoids tax’ it was neither the
seniority nor the controlling nature of the individual that should have been at the heart of the
matter. The real issue was that the assignment, by its long duration, had passed out of being
a legitimate assignment into something that looked much more like employment.
For this reason, making Controlling Persons the target of this measure and not people
whose interim assignments become too established is perverse and deeply destructive.
When the “Review of the tax arrangements of public sector appointees” document itself
emerged in May 2012, it became clear that interim managers would need to take care not to
be confused with disguised employees and suspected tax avoiders.
The Review recognises legitimate interim businesses, but in much of the later part of the
document, that message is obscured by the drive to catch and/or treat as employees the
suspected tax avoiders.
“There are circumstances in which it may be appropriate for an employer to engage an
individual off payroll – and the fact that an individual is engaged off-payroll doesn’t mean that
they are paying an incorrect amount of tax.” (Review page 3)
The Review proposed a three-pronged approach: (Review page 3)
•
•
•
That “most senior staff to be on the payroll, unless there are exceptional temporary
circumstances; “
That “employers [are] to ensure that they have the right to seek assurance about the tax
arrangements of long-term specialist contractors;”
A process of “monitoring after one year, with sanctions applied to departments who have
not abided by these recommendations.”
The interim community is concerned that:
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There will be a blanket provision for the “most senior staff to be on the payroll”. The
HMRC “Taxing of Controlling Persons” consultation document is not talking about
exceptions. Senior interim executives are legitimate exceptions. Whilst it should never be
the norm for a business to bring in an external professional to run or rescue a business
or a significant part of it, these individuals conduct this difficult and valuable activity as a
career choice.
The small community of senior interim executives is an invaluable boost to the UK
economy and legitimately operate as Personal Service Companies (PSC’s). To decimate
this profession by wrongly forcing these individuals onto payroll, which most senior
interims would not accept, is tantamount to business vandalism.
It should be sufficient that the requirement for tax assurance should be met by the
interim professional confirming their operation as a legitimate interim business. There
should not be blanket requirement to be taxed as an employee, regardless of the interim
manager’s business circumstances.
The expectation of review and fines for departments and bodies who do not comply is
already establishing an unhealthy culture that is finding interim managers dumped in
mid-assignment, and interim businesses being offered inappropriate Fixed-Term
Employment Contracts instead of interim engagements by day rate.
7 The interim management landscape
What is interim management?
There are estimated to be up to 10,000 professional interim managers and executives
providing their services to private and public sector organisations. They typically manage,
direct, or control, a project, or a part (or all) of an organisation for a finite period, taking
decisions and ensuring the implementation and management of those decisions.
They are not Consultants who tend to limit themselves to gathering information, giving
advice and guidance and recommending action, usually operating out of Consultancy firms.
Interim management explained
What is interim management?
Interim management is the provision of effective business solutions by an
independent, board or near-board level manager or executive, over a finite time
span. Such complex solutions may include change, transformation and turnaround
management, business improvement, crisis management and strategy development.
Interim managers are often experienced in multiple sectors and disciplines.
What do interim managers offer?
Interim managers and executives bring well-qualified skills and expertise to bear at
short notice, without the overheads and shackles associated with employment. They
consult, plan, advise, implement, and embed the lessons, then exit, handling a range
of key strategic and tactical interventions. As businesses in their own right, they offer
independent expertise, free of company politics, and take responsibility for delivering
results, not just offering advice.
Typical interim engagement requirements:
35% 33% 31% 30% 25% 20% 15% 10% 14% 12% 10% 5% 0% Specialist Change Execu;ve Project Business skills management 'gap' management turnaround [Ref 3]
8 Interim managers’ business status
88% of professional interim managers and executives operate through Limited Companies. It
is a model that suits the business of bringing independent solutions to businesses at speed.
Multiple employment arrangements are simply impractical and are inappropriate for
businesses that take the financial risks of repeated work gaps.
The Review document recognises that “There are many circumstances in which it may be
appropriate to engage an individual off payroll – for example, when they are a specialist
carrying out a short-term role for which civil service expertise is not available. In addition, an
individual engaged off payroll may pay the correct amount of tax.”
For example, they may be:
•
•
•
Self-employed and paying income tax and NICs via self-assessment
Supplied by an agency and on the payroll of the agency; or
Working through a PSC and genuinely in business on their own account
Interim managers consistently meet the business tests that define them as businesses. They
experience the financial risk of finding another piece of work after successfully completing
each client assignment. Something employees do not do.
Tax assurance
The Review document highlights the concern that if an individual is off payroll, “it will not
always be clear and transparent to the employer that the individual is meeting their income
tax and NICs obligations”. This begs the question of whether the contracting organisation is an employer or a client. In
the private sector It remains inappropriate for a client to be informed about whether its
suppliers are meeting their tax / NI obligations.
In the interests of transparency, professional interim managers and executives would
demonstrate their appropriate business status via a number of assurance mechanisms,
which may include:
•
•
•
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Evidence of a properly arranged Limited Company.
Evidence of company marketing collateral.
Evidence of Professional Indemnity Insurance.
Evidence (Via CV) that they do conduct finite length assignments.
Evidence from a regulatory body e.g. Institute of Interim Management
The nub of the issue is again not about tax status or Limited Company status per se. The
issue is one of perceived fairness. The assurance that is sought by these measures should
not be a detriment to genuine interim managers and executives that are genuinely in
business, with business risks and benefits of their profession.
Professional interim managers should not be hampered from carrying out a legitimate
profession, which incidentally benefits the Public Sector significantly, because an
understandable concern about disguised employment assumes that anyone off payroll is
guilty of inappropriate tax avoidance.
9 Interim management day rates
Interim managers are paid by day-rate to their Limited Company. This reflects the fact that
interim managers are not employees and do not enjoy the benefits and protections of
employment. In return for the risk and reward of operating as an independent business, they
charge an all-inclusive fee or ‘day-rate’.
Most interim managers charge between £400 and £800. As interim managers and
executives are professional business people who operate at or near Board level, these rates
are broadly equivalent to annual salaries between £50,000 and £100,000.
Equating a day-rate to annual salary is not as simple as multiplying the daily rate by 260 (the
number of days employees are paid). This schoolboy error has been made in the Review
document. (in point 2.5 and Table 4.A (B)).
The interim day-rate includes all the costs usually paid by employers as well as the costs of
operating the Limited Company business. On top of that, the average engagement lasts 7.3
months (155 billing days). During and after the assignment the interim manager is
conducting the sales and marketing necessary to secure their next assignment, with an
average gap of 2.1 months before securing that next assignment.
Compared to similar seniority employees, interim managers do not get:
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Any participation in employer pension schemes and employer pension contributions
Medical Insurance benefits
Life insurance benefits
Car/Travel benefits
Employee bonuses
Sickness and ill-health pay
Maternity pay
Holiday pay
Bank holiday pay
Job security
Redundancy pay
Employment rights protection
As one of the key benefits of interim managers to business is that they are immediately
available. Interim managers do not normally move straight into a new assignment when they
finish their current project.
The average successful interim manager experiences an assignment gap of 2.1 months
between assignments, during which time they seek and market themselves for their next
engagement. This is a cost of doing business and is a risk that differentiates interim
managers from employees. Some niche interims experience far longer gaps.
Finally, particularly with the Managing Public Money guidance in mind, the cost to the public
sector of providing employee benefits and rights to people who do not want them,
considerably outweighs any modest tax saving that the interim manager legitimately receives
due to balancing the risk and reward of independent working.
10 Interim management engagement duration
The assignment durations of professional interim managers are not typical of the durations
of off payroll public sector workers quoted within the Review document.
Over two thirds of interim management assignments (69%) are concluded within a year, and
with assignment durations of 7.3 months (155 billed days) on average.
The understandable criticism aimed at those who utilise PSC tax arrangements
disingenuously, by sitting in contracts running in some cases a decade in length is mistargeted at the vast majority of the interim management profession who have short
assignments and therefore appropriately utilise such tax structures as a necessary feature of
their business models.
Interim management engagement duration
How does the engagement duration of interim managers compare to the
duration periods of all those off payroll in the Public Sector?
Professional interim managers (IM’s) are engaged on average for shorter periods
than the group of off-payroll workers’) identified in the Review document.
69% of IM’s are engaged for less than 1 year, as opposed to 45% in the Review
sample. Similarly, in the Review sample, 40%, of those off-payroll are engaged for
over 2 years, whereas of the interim managers, only 7% cross the 2-year point.
45% 35% 30% 30% 25% 25% 20% 40% 39% 40% 25% 20% Interim Mgrs 15% Public off payroll 15% 10% 7% 5% 0% 0 < 6 months 6 < 12 months 1 < 2 years 2 years plus If the government is seeking to address the 2 year + contractors, the professional
interim management community is not the target they are looking for.
Source: [Ref 1] (Public off payroll): Danny Alexander Review document
Source: [Ref 3] (Interim managers): IIM survey 2012 of 2,013 interim managers.
11 Interim managers in the public sector
Genuine interim managers and executives operate actively in the public sector. In the UK
(based on 2012 data), the Public Sector accounts for 25% of interim management
placements (69% of interim managers trade in the private sector and 7% operate in Charities
and Not-for-Profit organisations.
Public sector departments and bodies can benefit greatly from the short, sharp, solution that
an interim manager can bring to bear.
IR35 and tax assurance
As the Review document advises:
“departments should also avoid engaging individuals where they suspect that the individual
is avoiding tax.”
It is perfectly reasonable for interim managers to give appropriate assurance of their
business status. What is not appropriate or helpful is for departments to equate every offpayroll engagement with tax avoidance.
As outlined above, professional interim managers and executives are able to show their
appropriate business status via a number of assurance mechanisms, which may include:
•
•
•
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Evidence of a properly arranged Limited Company.
Evidence of company marketing collateral.
Evidence of Professional Indemnity Insurance.
Evidence (Via CV) that they do conduct finite length assignments.
Evidence from a regulatory body e.g. Institute of Interim Management
The Review document again makes clear:
•
•
•
“A personal service company is often a genuine commercial arrangement allowing an
organisation to buy in specialist skills on a short term basis that they would have no
use for in the long term.”
“There is no requirement for a personal service company to operate PAYE on their
income provided that income is not from a contract which would be one of
employment if the worker was not engaged through a personal service company.”
“Many people who work through personal service companies will choose to withdraw
at least part of their profits as salary and pay the income tax and NICs associated
with doing so.”
Professional interim managers are well aware of the details of IR35 guidance, and
endeavour to stay clear of the inevitable shades of grey that separate those who are patently
employees and those who are patently in business in their own right.
IR35 and the Controlling Persons proposals contradict each other. If you comply with IR35
you are likely earning more than £220 a day and may likely be a Controlling Person.
12 Interim management and consultancy
It is clear that the Public Sector has used a considerable amount of consultancy resources in
recent years. Consultancy spend has fallen by 71% between 2009-10 and 2010-11. This
reduction risks that urgent crises, projects and skill shortfalls are being left unaddressed.
Interim managers are ideal resources to use in relation to time-sensitive, and finite
implementations that would otherwise have fallen to consultancy firms. Interim managers are
not only more cost-effective (interim fees are typically a fraction of management consultancy
fees), they also implement the solution instead of just advising.
Procurement
As outlined in the Review document:
“The Government Procurement Service are currently developing a new contracting strategy
for interims, which will replace all current frameworks for central government departments
and which will reflect the recommendations of this review. The strategy will introduce a
single neutral supplier solution for all departments and their arm’s length bodies, providing a
single route to the market for interims and specialist contractors ensuring adherence to all
compliance and governance controls.”
The interim community welcomes opportunities to tender their services, in the hope:
•
•
•
That opportunities will be opened to interim managers and interim management
agencies, as well as consultancy firms
That tax assurance tests will be reasonable and appropriate to interim businesses
That expertise as well as cost is judged, to not simply appoint the cheapest temp
Recent trends: Fixed-Term contracts and interim dumping
More interim management engagements are being offered as Fixed-Term Employment
contracts. By that we mean a temporary engagement on payroll, typically with a pro-rata
salary that attracts employee tax and NI, equivalent to a business as usual employee.
Professional interims are faced with the prospect of operating through a limited company,
with its costs and burdens, yet without the efficient tax framework that is appropriate to an
immediately available interim manager; of being paid as an employee but without
employment benefits or rights. That is the worst of both worlds.
Most interim managers will reject such a structure. That leaves in the candidate pool for the
public body those individuals who are new to interim, who may be temping before finding a
new permanent job, or frankly those interims who are particularly desperate.
A recent disturbing trend is that of ‘interim dumping’. This is where interim are having their
engagement summarily stopped, one suspects with the Review in mind.
As interim managers operate in business, without any mutuality of obligation, the ending of
an engagement is acceptable and normal, but not normally mid-engagement.
This behaviour is damaging the public sector, for only an illusionary benefit.
13 Policy proposals
Reaction to the Review proposals
The Review document sensibly proposes that:
“It will always be necessary for the Government to make a small number of temporary and/or
specialist appointments to ensure that public services are delivered effectively.”
It also proposes that:
“the Government, as the engager of these individuals, has the right to seek assurance that
those it engages but does not place in its payroll are paying the correct amount of tax and
NICs.”
Professional interim managers and executives are a key part of the flexible economy,
particularly adding value to areas of government and related bodies requiring temporary but
impactful interventions to address efficiency, transition, turnaround and growth, without ongoing and unnecessary employment costs to the public sector.
There are some elements of these well-meant proposals that appear to be ‘using a hammer
to crack a nut’.
Reaction to the controlling persons consultation
The proposal, currently entering consultation to:
“require all organisations in both the public and private sector to place ‘controlling persons’
on the payroll, even when they are currently working through a personal service company.”
Is ill considered, un-necessary and damaging to the UK economy.
Senior interim executives undertake engagements, often in turnaround and crisis situations
embark on finite engagements to deal with very difficult business situations on a moment’s
notice. They carry these activities out as independent businesses, moving from engagement
to engagement.
The IIM and others will be robustly responding to this perverse proposal that if implemented
would significantly reduce the pool of individuals who respond to those key and crisis
interventions. The proposals would reduce UK plc’s international competitiveness and
threaten to destroy a profession of many thousands of individuals who protect and repair
threatened businesses.
The consultation process will be the recipient of a detailed case, but some key
considerations most obviously apparent are:
•
Exercising control is seen as a key IR35 test that a person is operating as an
independent business. In this case, exercising control will perversely be used as a
criterion that the person should be treated as an employee.
14 •
Interim executives exercising control may be appointed by liquidators or other 3rd
parties. For an interim executive to go onto the payroll of the failing business or the
payroll of the client 3rd party is counter-productive, and may endanger the interim
executive’s independence and governance.
•
The notion that an independent professional providing business services should be
debarred from his or her profession on the basis of their seniority is illogical and is
anti-business.
•
If such senior trouble-shooters are forced to be employed, they may as well return to
full permanent employment, and leave businesses and government departments in
trouble to cope without them.
•
These proposals spell disaster for professional interim executives and the companies
and public sector departments that rely upon their services.
•
It is extremely unclear what problem these proposals are trying to address. If a senior
executive is required for a short time to address a critical business need, why should
that business-popular service be legislated against?
The challenge: Gain assurance without breaking interim management
•
The IIM is delighted to see the very clear wish in the Review document:
“In designing these measures, the challenge is to find the right balance between
having assurance that where individuals are contracted by central government they
are meeting their tax obligations, while avoiding the imposition of significant
administrative burdens on small businesses or departments.”
Despite the stated aim, parts of the proposals plainly misunderstand the interim
management profession and the value of independent business professionals.
Three categories of off-­‐payroll individuals engaged on assignment
The Review document proposes:
•
“Senior management – where the tax arrangements of individuals should not be
open to question. Individuals should therefore be on the payroll, unless there are
exceptional, temporary circumstances.”
Being ‘open to question’ relies upon an understanding of who is providing the
intervention, under what framework (business or employed) and for how long. If there
were sufficient qualified employees available, there would not historically be a
pressing need for interim engagements.
The requirement to engage an interim manager or executive should be exceptional
and temporary. However, the need to engage should not be so stigmatised as to
deter an engagement that is required, and the temporary period should be sufficient
to get the job done.
15 The 6-month proposal is less than the average interim engagement length. An
arbitrary cut-off hampers interim professionals from conduct an impactful
engagement that the business of department requires.
•
“Long-term contractors – where the importance of such roles and the size of
payment means that departments should have the right to assure themselves that
income tax and NICs obligations are being met.”
Interim managers tend not to work on long-term engagements (>2 years). The IIM
has no problem with fair assurance mechanisms differentiating between legitimate
contractors and employees to the satisfaction of the public sector.
•
“Short-term contractors – where the potential for assurance needs to be balanced
against additional burdens placed on departments and contractors, so it should not
be compulsory for departments to place the right to seek assurance in contracts –
though departments may choose to do so.”
If the assurance test is reasonable, there is no reason why it cannot be applied below
6 months engagement duration.
Ill-conceived assumptions
Whilst the principles of the review are laudable, there are a few ill-conceived assumptions.
6 months is an implied cut-off to engagements.
The length of an engagement is determined by the engagement needs. To issue a global
cut-off of 6 months, after which it is implied that the independent professional should be
employed, makes no business sense and disrupts the engagement to no benefit for the
public sector.
•
A better approach would be to discuss the engagement length from the outset, and to
drive the engagement to a conclusion. If the engagement is sufficiently complex to
merit engagement up to 1 year, then at that point an end-date should be looming, or
a discussion about on-going engagement as an employee may be appropriate.
An understanding of the most basic principles of interim management should be a
precursor for legislating on change proposals.
•
An interim management day rate is not the employee salary divided by 260
A balanced understanding of the value and cost of interim management is hampered
by the naïve understanding of how interim businesses operate. Interim managers do
not receive many of the extras that employees receive, so their costs are factored
into the day rate.
16 Summary of recommendations
Interim managers should meet tax assurances…
Interim managers operating in business in their own right should be able to assure
the public sector of their genuine business status without being fettered.
…but interim managers should not fall prey to an off-payroll witch hunt.
The Review document repeatedly points out that independent professionals do
legitimately operate in the public sector. The proposals over-emphasise the targeted
tax-avoiders creating a climate that is anti-interim-small-business, to the detriment of
the public sector. Professional and genuine interim businesses do pay the correct
amount of tax for their PSC business model, incorporating risk and reward.
Time limits should be appropriate to the engagement not arbitrarily capped.
Assurance tests should be capable of determining locally when it is time to draw an
engagement to a close, not by imposing an arbitrary and damaging time limit such as
6 months, irrespective of the nature of the engagement.
Interim managers are in business. They are not fixed-term employees.
Public sector bodies engaging interims as fixed-term employees are fooling
themselves if they think the most skilled professionals will accept FTC engagements.
They will be left with a candidate pool of the untested and the desperate.
Governmental bodies should stop offering professional interims Fixed-Term
employment contracts. Day rates are appropriate, so long as they are well governed.
Procurement strategies should release the power of interim managers.
Centralised procurement should recognise professional interim managers who are
engaged for short periods via a PSC, given appropriate professional conduct
assurance. Procurement strategy should balance expertise as well as cost, so that
the cheapest offering is not simply appointed, risking the success of the work.
The Controlling Persons proposals are ill conceived and damaging.
To insist that senior executives who troubleshoot businesses on an interim basis
should be forced to abandon their businesses and go onto payroll is perverse. This
has the potential to damage UK competitiveness, destroy the valuable profession of
executive interim management that has added great service to UK plc over the last
30 years and particularly it would leave the public sector, which by all account needs
short-term executive help, without this resource.
Institute of Interim Management
17 References
[Reference 1]
Review of the tax arrangements of public sector appointees
(a.k.a. the Danny Alexander Review document)
http://www.hm-treasury.gov.uk/d/tax_pay_appointees_review_230512.pdf
[Reference 2]
Consultation into the Taxation of Controlling Persons
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=tru
e&_pageLabel=pageLibrary_ConsultationDocuments&propertyType=document&columns=1
&id=HMCE_PROD1_032074
[Reference 3]
Institute of Interim Management (IIM) – Interim Management Survey 2012
(Extracts used in this document; Due to be published in August 2012)
http://www.iim.org.uk/survey
Institute of Interim Management (IIM)
http://www.iim.org.uk
http://www.iim.org.uk/threat
[email protected]
18 Appendix I
Interim management survey responses
Feedback taken from a survey of 2,013 interim managers in June/July 2012 [Ref 3] about
their response to the Alexander Review and the HMRC Controlling Persons consultation.
Would you go onto payroll / pay under PAYE after 6 months on assignment?
64% 70% 60% 50% 25% 40% 30% The Danny Alexander
Review document
implies that 6 months
will be the limit after
which individuals will
need to be either on
payroll or paid under a
PAYE mechanism.
11% 20% 10% 0% Happy with PAYE Reluctant to go PAYE Will not go PAYE One third (36%) would
go onto a PAYE
arrangement, though
most of them
reluctantly (25%).
The vast majority (64%) would cease their assignment rather than be treated like an employee.
Would you give assurances as to your tax status in relation to an engagement?
80% Nearly three quarters
would be perfectly
happy to provide tax
assurance, by which
their legitimate Limited
Company earnings
could be disclosed.
71% 70% 60% 50% 40% 30% 15% 14% 20% 10% 0% Happy to give tax Relectant to give assurance tax assurance Would not give tax assurance To be clear, this
comfort with giving tax
assurance is not the
same as having to give
assurance of being
paid PAYE or under
IR35, which is another
matter entirely.
19 Would you work on a Fixed-Term-Contract (FTC) via an agency or on payroll?
47% 50% 31% 40% 30% 22% 20% If push comes to
shove, about half
those surveyed would
accept a Fixed-TermContract (FTC) via an
agency, 31% of them
reluctantly.
47% would not take an
agency FTC.
10% 0% Happy to agency FTC Relucant to agency FTC Will not do agency FTC 46% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 34% 20% Similarly, about the
same response was
measured in relation
to a Fixed-TermContract on employer
payroll.
46% would not take
an employed FTC.
Happy to be FTC employed Relucant to be FTC employed Will not FTC employed 20 Are you a ‘Controlling Person’?
Nearly half (45%) of
interim managers
consider themselves
“Controlling Persons”
55% 60% 45% 50% 46% would not take an
employed FTC.
40% 30% 20% 10% 0% A 'controlling' person Not 'controlling' How do you react to being taxed as an ‘employee’?
70% 60% 50% 40% 30% 20% 10% 0% 61% 27% 12% Happy to be taxed as employee 39% of ‘Controlling’
interims would accept
being taxed as an
employee, 27% of
them reluctantly.
61% would not accept
assignments on that
basis.
Reluctantly be taxed as employee Will not be taxed as employee 21 If you accept being taxed as an ‘employee’, what else will you do?
Of those who would
accept the ‘employee
tax’ regime, 97%
would seek to mitigate
the change by
increasing their rate.
97% 100% 80% 60% 40% Senior interim
executives are leaders
in their fields so a rate
increase would be
feasible.
3% 20% 0% Fine with situa;on Increase rate If you do not accept being taxed as an ‘employee’, what else will you do?
34% 32% 35% 30% 25% 20% 15% 10% 5% 0% 21% 13% Those who would not
accept the ‘employee
tax’ regime plan a
range of options.
Most popular is to
migrate to offer
‘management
consultancy’, via a
consultancy firm
(34%)
32% would leave the
UK and provide their
services
internationally.
21% would take ‘non-controlling’ assignments instead. 13% would return to permanent employment.
th
© Institute of Interim Management – 26 July 2012 (version 1.21 fw-ima)
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