From what I have read in the newspapers about Ed Lester and the Student Loans Company I do think that the beneficial case for engaging interim managers through their limited companies needs to be made.
Interim managers are an established management resource to cover gaps, bring about change and generally manage difficult projects. Very often they are engaged where incumbent management has failed to address or resolve business critical issues.
Interims have been and will continue to be a “vital agent of beneficial change” both in the Public and Private Sectors.
They are engaged on a project basis and when the project is finished they move on to other organisations. There is a “pool” of senior interim managers in theUKestimated at around five thousand in total.
First of all interim managers, in business on their own account and operating through their own limited companies, are not employees of the hiring organisation. Operating through a limited company means that the hiring organisation cannot be liable for the PAYE and national insurance, pension, holiday, sickness of the interim manager.
Secondly and this is the important point the interim manager does not avoid paying PAYE or national insurance on his fees. PAYE and NI is paid by his limited company on the salary he/she draws from that limited company. In addition Corporation Tax is payable on the remaining profits within that limited company. Dividends taken are subject to Income Tax in the normal way. So the interim manager is not only being taxed on the salary and dividends he draws from his own limited company but also Corporation Tax on any profits remaining.
Thirdly and in addition since the year 2000 and on the introduction of Intermediaries Legislation (IR35) – Working through an intermediary, such as a Personal Service Company (“The Regulations”) interims are required on an annual basis to calculate whether they fall within the scope of these regulations. If so they must take almost the full amount of their fees as salary (paying tax and National Insurance on this) rather than being able to take fees as a divided which does not bear National Insurance.
Therefore there is already a tax regime in place so that interim managers operating through their limited companies pay their correct tax and National Insurance.
It is therefore a fallacy that interim managers, operating through limited companies, do not pay their full taxes.
Interim Managers operate as a dynamic part of the economy to bring about change giving organisations both in the Public and Private Sectors complete flexibility on engaging additional management resources.
Hiring organisations pay a daily fee to engage the interim manager’s limited company. As the interim manager engaged this way is not an employee, their limited company pays the taxes as outlined above, the “hirer” is not liable to employer’s national insurance, pension contributions, payment for sickness or holidays, redundancy etc on the fees paid as they would for a salaried employee.
Interim Management is a highly flexible management resource that benefits the hirer. By this “knee jerk” action that the Government is taking, ostensibly to clamp down on tax avoidance, it is likely to throw the “baby out with the bathwater” by discouraging talented interim managers, who are already paying their correct tax as set out above – in business on their own account, from operating in the Public Sector.
This is a general clarification of how interim manager’s operate. I am not commenting on the specifics of the Ed Lester engagement.
Mike Measures
