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One man and his mouse fight back

The Times 11th August 1999

The Treasury did not realise what it was taking on when it decided to try to prevent consultants and other freelances carrying out their business under the guise of personal service companies.

These individuals have fought back, taking to the Internet to rally support for their cause, and it seems that they have persuaded the Government that its original plans may have been a touch ham-fisted. If the work they do through their personal services companies is as effective, then the consultants' fees may well be justified. The Treasury thought that it had identified a quick and easy way of netting another 450 million, by forcing those who provide services through their own companies to be taxed as employees. But, as with so many projects, the Government strode into action without first properly surveying the field.

Talk first, research later is a dangerous way to do business, as was evidenced by the muddled conception of the Individual Savings Account and the confusion that now surrounds stakeholder pensions. There are some personal service companies that do amount to abuses of the tax system, where a chap can be doing the same job for the same pay on Friday and on Monday but, having been handed his P45 at the end of one week and started working for his personal service company at the beginning of the next one, both he and his former employer should be better off.

Yet, for every such sham, there are many genuine independent operators carving a living as service providers. Apart from the benefits they would lose if they had to forgo their incorporated status, operating as companies gives them kudos that being a mere freelance would not. There were real fears that the Government's plans would result in many of them being driven out of business and back on to the unemployment figures, not a desirable outcome from the Treasury's point of view. More than 1,700 written responses apprised Inland Revenue officials of the potential consequences of the proposals, which were announced in the March Budget. The Treasury accompanied the news of its crackdown with the boast that it was committed to encouraging modern businesses.

But the modern business is as likely to be one man and his mouse as it is to be a conventional factory with a cloth-capped trade union convenor. The lawmakers need to keep up with the changes.