U.K. Interims Oppose Initiative That Would Tax Them as Employees

The U.K. government currently is collecting feedback on a proposed initiative, The Taxation of Controlling Persons, that interim executives say would harm their businesses.

In the name of seeking a simpler and more transparent tax system, the draft legislation seeks to require that individuals who direct the activities of an organisation at the senior level must be taxed as employees.

“This is being done with the best of intentions—that of dealing with the fat cats and tax cheats exposed in the media in recent months, but the rudimentary regulations and tax treatments are catching and threatening the livelihood of professional interim managers and executives….” The UK-based Institute of interim Management stated in its 2012 market survey, released this September.

The threat to interim executives is that the new tax doesn’t take into account their role as in-and-out agents of change.

The initiative would affect all at the executive or controlling level, or in the language of the document, “(any)one who is able to shape the direction of the organisation having authority or responsibility for directing or controlling the major activities of the engaging organisation during the year. This would be someone who has managerial control over a significant proportion of the organisation’s employees and/or control over a significant proportion of the budget of the organisation.”

Yes, interim executives are at the controlling level; no, interim executives are not permanent employees. In essence, the government apparently is looking to tighten rules on managerial-level people who could subvert the tax system by blurring the lines between temporary engagements and permanent employment.

“The Government’s intention is to ensure that where an organisation engages a controlling person the engaging organisation will be required to deduct the income tax (PAYE) and National Insurance at source, as they would for their employees. This ensures that the taxation of the worker is transparent to the engager,” states the official consultation document. And more transparent to the government, too.

But seasoned interim executives want to make crystal clear the difference between those who take interim contracts, and those who would extend contracts into something that is more permanent and subject to permanent employee taxation.

Interim executives in the U.K. have carved out a significant economic role by providing management solutions to companies that need to bolster or replace an existing management team. They generally provide services under their own personal services companies, and assignments tend to last around 1 year or less.

Simon Drake, Executive Interim Director at Penna PLC and a representative of the Interim Management Association, a group representing interim recruiting agencies, is concerned about the impact if the initiative becomes law: “There is no doubt that this would have a detrimental effect on the immediate and flexible approach to leadership support, which today’s Interim Management market provides for organisations.”

The initiative could be just what the UK economy doesn’t need right now, interims suggest, negatively impacting growth factors, and possibly stimulate increased rates to the companies eager for access to interim executive skills.

The UK Treasury was accepting responses to the consultation document by August 16.