Written evidence submitted by Crowe UK LLP


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The Treasury Select Committee has called for evidence on pressures in the tax system and areas where reform is most pressing. We are responding on 3 particular points:


  1. In our view the differences between the taxation of employment income and that received from self-employment or by individuals providing services through a personal service company should be addressed. They lead to unfair outcomes and drive behaviours that lead individuals to miss out on rights and benefits.


  1. We would like to see alignment in the rates of income tax and National Insurance on different types of income, so the amount of tax paid by an individual is more closely aligned to their overall income and less dependent on the form in which that income is received.


  1. On international corporate tax, we would like to see continuing and increased international collaboration and co-operation. The unilateral imposition of the Digital Services Tax takes this in the wrong direction, in our view, increasing costs to business.


We provide more detail on each of these in the following paragraphs.

  1. Income from employment vs self-employment vs personal service company

Consider A, B and C, 3 individuals who all have the same specialist skills and find themselves working on the same project for a corporate, Z Ltd. A is an employee of Z, B is a self-employed consultant and C provides services through C Ltd, their personal service company.


If Z Ltd rewards them each with £50,000, and none has any other income or deductions, then their tax and NI positions are as follows:






Net received

A (employee)[1]





B (self-employed)





C (personal company)






This provides a clear financial incentive to both individual and company to choose to buy services from individuals who are not on the payroll but work for themselves in some way, with personal service companies providing the highest take-home amount for the individual at least cost to the employer.


But to truly understand the significance of the issue it is perhaps better to see how these three individuals might share the £50,000 with the Government assuming profitable businesses and that it is their only source.  This is illustrated below.


Share of £50,000


Self Employed

Personal Company

Net taken home








Government receipts:




Income tax




Corporation tax




Personal NIC




Employer NIC




Total receipts








Government share





In this example it is difficult to see why it would be appropriate to take 50% more in Government receipts in relation to an employee compared to the operator of a personal company with the same potential £50,000 of earnings.


This tax mismatch is not fair: employees benefit from other rights (holiday pay, statutory employment protections) and individuals taken on through a PSC do not benefit from these. During the Coronavirus schemes, some people who were self-employed missed out on support because of the timing of their self-employment while those working through personal service companies did not receive support based on their total income because tax differentials had encouraged them to take it in a lower-tax form.


Addressing these mismatches should be a priority, ideally in conjunction with BEIS’ work on the implementation of the Taylor “Good Work” report, which considered the employee/worker/self-employed landscape more widely than simply through a tax lens.

  1. Alignment of rates of tax on income

Currently there are different rates of tax on savings income, dividend income and earned income. National Insurance rates vary with age, income level and employed/self-employed status. The result is a confusing plethora of different rates and a tax system that charges people with the same amount of “income” different amounts of tax.


While a full merger of NI and tax has previously been found to be profoundly complex, the alignment of their administration has been considered, for example by the Office of Tax Simplification, and would be significantly easier. In line with this, we consider that all the different rates and criteria should be reviewed with a view to having a simple system of 2 or 3 rates of tax/NI (combined) charged on people’s income.


Reducing the many variants in rates would be a simplification and would also reduce both opportunities for rate arbitrage and the driving of undesirable behaviours in pursuit of the lower possible tax and NI costs.


  1. International Corporate Tax Collaboration

The OECD work on BEPS and other international collaborations on taxes have the potential to bring a co-ordinated approach to these multilateral, cross-border issues, increasing transparency & decreasing complexity and the sheer number of different rules that multinational businesses have to keep track of. We support this direction of travel and are concerned that the unilateral imposition by the UK (although it is not alone) of the Digital Services Tax to apply to certain matters which are being dealt with through BEPS serves to muddy the waters significantly. Although the DST is written with a sunset clause to be replaced by a future multilateral solution, we would be concerned by a proliferation of unilateral responses to matters of globalisation that are better dealt with by international co-operative responses.


August 2020



[1] Z Ltd also pays employer NI of £5,687

[2] Salary of £12,500 taken

[3] Comprises employer’s NI and employee NI