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Should we risk losing timely help from our Interim Captains of Industry? Penna says no

Should we risk losing timely help from our Interim & lsquo;Captains of Industry’? Penna says no

Penna Plc, one of the leading providers of Executive Interim Managers in the UK, today raised questions about the Government’s consultation document “The Taxation of Controlling Persons” and suggested that changes be made to the proposal. In this time of unprecedented challenge for our economy, where growth and business improvement is critical to the UK’s competitiveness, Penna hopes that the plans undergo a careful and considered review and that the Interim Management industry is asked to provide feedback to ensure that a balanced solution is agreed upon.

The primary proposal of “The Taxation of Controlling Persons” is that organisations using Executive Interim Managers will be required to deduct the full equivalent income tax (PAYE) and National Insurance Contributions (NIC) directly, as if the Interim Manager were employed instead of operating as a business. This initiative has the potential to at best significantly disrupt, and at worse seriously damage, a highly valued service that many organisations benefit from today one that helps Boards and leadership teams to improve their businesses.

All organisations at some time suffer a loss in management and leadership or quickly require new leadership talent to help them improve or change. This is when the Boards or Leadership teams of these organisations turn to highly experienced Interim Managers who have & lsquo;been there and done it’ and are able to quickly step in to strengthen, or sometimes replace, the existing management team. Sometimes these projects are critical and a business is turned-around or averts a potential crisis sometimes the business simply fills a specialist need which, due to its short-term nature wouldn’t be appropriate for employment. The outcome is that the buying organisation is able to change quickly and improve.

Currently, Interims are provided through a simple & lsquo;business to business’ commercial relationship without employment rights which allows their services to be engaged very quickly (typically within 2 – 10 days). These interims are self-employed experts, Directors of a Limited Company, called a Personal Service Company (PSC). This allows the buying organisation to employ the skills of these experienced business people without constraints of employment legislation or any other employee entitlements that would otherwise delay and complicate the process. The assignments are, by nature, short-term and typically last an average of between 8 to 10 months.

Given this average length of assignment, we recommend that if this legislation is applied, it should only apply for assignments where the Personal Service Company is assigned for over 12 months.

Information from the recent IIM’s (Institute of Interim Management) annual survey clearly indicates that if the taxation does go ahead as proposed, thousands of Interim Managers will simply choose not to remain self-employed, with only 12%* confirming that they would accept the proposals and 97%* saying that if they accept, then the buying organisation would have to increase their rates to accommodate the increased tax.

If the Interim Management sector did not exist as it does today, the buying organisations would have little choice but to postpone strategic change and business improvements until additional senior employees are hired, or work with typically more expensive management consultancies, which could be both costly and simply not practical. This has the potential to leave UK businesses and our public sector uncompetitive at a time when remaining highly competitive and efficient is paramount.

We have until 16 August 2012 to provide a response on the critical Consultation. Please do join us along with other organisations such as the IMA, REC, IIM and PCG, in making sure that your views are known and that you request a change to this proposal which is found here.

* The Institute of Interim Management (IIM) Survey results within & lsquo;IIM Response to Threats’, August 2012.


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