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Is the party over for Personal Service Companies, and could EOTs be an alternative?

19 September 2019

It sounds fun and chilled the Gig Economy, but those who have to work in it know that it is often far from fun. Its growth has been fuelled by all sorts of factors, notably the craze for outsourcing everything. But as Carillion shows, outsourcing can come at a very big price. Globalisation has driven down wages of many lower paid workers in the West and forced them into accepting poorer pay and conditions and a lack of security. Of course, some people find the flexibility convenient - for a time, but such work cannot fund retirement savings or secure housing.

For some workers, the use of a Personal Service Company (PSC) has been a convenient way for their “employers” to side-step National Insurance Contributions (NICs) and sometimes workers are forced into such structures. If that happens they lose the benefits of employment. One of such benefits which is sometimes overlooked includes the opportunity potentially to benefit from government tax favoured employee share schemes, if their employer encourages employee ownership.

HMRC now have the lost NICs caused by PSCs firmly in their sights, and are more actively challenging such arrangements. The whole IR35 regime is expected to be transformed in April 2020. But there is also a growing awareness that the insecurity of the Gig Economy encourages a corresponding lack of a sense of responsibility by workers in the Gig Economy. So maybe the time has come to re-think the whole approach and we will see a reversal of the trends of the last 30 years.

An alternative which can give employees greater security, responsibility and rewards, is the Employee Owned Trust (EOT) owned company where employees can share in the profits and responsibilities of their enterprise. This offers the prospect of a much brighter future than the ever downward spiral of endless outsourcing and the Gig Economy.

Pett, Franklin & Co. LLP are experts in employee share schemesexecutive incentives and share valuation. To find out more about how we can help you or your client, please contact William Franklin on william.franklin@pettfranklin.com or call 0121 348 7878.

 

 

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