When is it valid to deliver professional services on a b2b basis vs. it being right to be an employee?
Scope of this paper:
Review of the tax arrangements of public sector appointees. The HMRC Consultation proposals here: The Taxation of Controlling Persons. The Health Service Journal has published the leaked: Implementing the recommendations of the HMT review of tax arrangements.
There are lots of assumptions I will attempt to define and draw the line between a commonly held definitions of an interim management service business vs. an employee. Indeed IR35 did seem to capture the key points qualifying separation of an interim manager vs. an employee. It should be acknowledged there has been abuse where individuals where those who do NOT meet the definition of an interim manager should certainly have been employed by the company or public sector. There are too gap management situations that should be delivered on a short term employment contract, and should be reviewed. For example where the role is simply fulfilling another employee’s role for a period of time should be fulfilled on a short term employment contract. There is a pressing need to collect tax and interim managers have that obligation to do so. However the response to these isolated incidents has the potential to catch interim managers in the wrong net.
Definition of an interim manager
Interim managers do not live in the employment net with the company they contract with – as they are employees of their own service companies.
The critical question is therefore around validity of the professional interim managers business – business relationship so to explain;
Interim managers are those that work through a business and offer specific expertise regardless of their seniority within an organisation. It does not follow that board members should automatically become employees nor is there a notional fee rate at which their status changes. Interim managers operate at all fees that suit the scenario and the value they offer. They carry the costs of running a business; marketing, insurance, personal professional development and deliver their service using their own equipment.
Why is it necessary for interim managers to work in this way in order to be effective, vs. let’s say an employee?
- They bring specific experience for a limited amount of time to fulfil a discrete requirement then leave. This is outlined in a purchase order with a client, means of engagement; equipment used, alongside costs and duration they are required, and definition of completion – i.e. the close.
- Interim manager’s services businesses have no interest in becoming an employee of the customer company or having the benefits of becoming an employee. They are employees of their own limited or sole trading companies as the case may be
- The value comes from the independence and for example this independence is essential to resolve board matters in turnaround scenarios when being an employee can put them at risk of becoming complicit if they are an employee.
- Or supporting management through a transition where the fact that the interim manager has to fulfil the brief and develop the customer to the point that they can do it themselves. If they were an employee their ability to take a tough stand would very often compromise their independence or employment status.
- This enables and interim management company to be appointed by shareholders, chair who has responsibility to shareholders, bank or another body independent of employees, and provide services as the situation requires independent of the individuals.
- Interim managers therefore pay NI / corporation employment tax contributions and are subject to company law just like any other director or employee or shareholder of a limited, or sole trading company as the case may be.
- Regarding the sensitivities of value for money; Fees are often higher than employees as they are experts in what they, and they are not employee equivalents do but this includes them paying their own taxes and costs as is required by company law and therefore as the service is more expedient and more effective than using an employee offers little comparison and in fact very good value. Specifically there are many examples of where matters have remained unresolved for years and an interim manager has acted and addressed the issue within days, without which the organisation is stuck.
- Interim managers should too maintain their professional status through their respective professional bodies and intuitions to maintain their capability
- The contract is to supply a service independent of the individual, so interim managers operating through their businesses stands scrutiny in terms of delivering best value to UK plc and in no way qualify professional interim managers as employees. Indeed they do they wish to become employees as this would limit their ability to deliver the unique service they provide.
So in summary the definition of interim management should be clear with legislation such as IR35 to act as the check. There are a few areas of ambiguity around gap management which should stand this test too. So rather than threaten a £1.5Bn industry it should be defined and laws created in support that define when there is a genuine reason and means to supply services on a b2b basis.