Conflating working through a limited company and ‘Tory Sleaze’ is anti-business and an unhelpful distraction

Earlier this week it emerged that MPs with ‘second jobs’ were, in some cases, providing services to their clients via their own limited companies. The revelations appeared in a Times article which strongly implied the motivation for using the incorporated structures was tax avoidance. If you don’t have a Times subscription you may not be able to access the full article, but you will still see the headline which reads ‘MPs may be avoiding big tax bills on second jobs’. Both the headline and the general thrust of the article are concerning for a few reasons.

Firstly, the article conflates two separate issues. One is the question of whether it is appropriate for MPs to seek work opportunities outside of their Parliamentary duties. The other is whether it is right for MPs – or anyone else for that matter – to work via a limited company. IPSE is neutral on the first question but very much not neutral on the second. Bringing the two issues together links the use of limited companies with the ‘Tory sleaze’ scandal that has bubbled up since the Owen Patterson affair. The suggestion is that working via a limited company is in some way dishonest. The article doesn’t say that, but the implication is most certainly there.

Secondly, there is no acknowledgement of the many good reasons to form a limited company. Although the article correctly states ‘it is legal’ to use a limited company for freelance work, it dwells heavily on the tax implications. There is no mention of the commercial benefits of incorporating – the protection of personal assets, the projection of a professional image, and the protection it offers clients. The reality is that if you are in business, forming a limited company very often makes good business sense – tax, despite The Times’ suggestion, is often a secondary consideration. Again, it may be the case that we don’t want our MPs to be in business, but that is a separate question to the legitimacy of limited companies.

And on the issue of tax, the suggestion that individuals can avoid ‘big tax bills’ by using a limited company is misleading. Contrary to popular belief, company directors do pay tax – quite a lot of it actually. While payments aren’t taxed at source, they are taxed and directors, sole traders and employees pay comparable amounts (in some cases company directors also charge VAT which generates more revenue for the exchequer). The elephant in the room is Employers’ National Insurance which is only charged on employment, but the beneficiary here is the client, not the individual.

If MPs are to work privately, are we saying they should be employed and be at the beck and call of an employer? Wouldn’t this conflict more directly with their role as Parliamentarians? Isn’t it preferable that they retain a high degree of autonomy to enable them to fit these work commitments around their main function of representing their constituents in Westminster?

Finally, the biggest problem with this article, and others like it, is that it once again posits working through a limited company – or ‘personal service company’ as The Times puts it – as a tax dodge. But what is the alternative for contractors, consultants and freelancers? Many clients and agencies won’t work with sole traders as it leaves them open to employment rights claims and they aren’t always looking for an employee. Sometimes organisations need a freelancer to come in, work on a project, then leave and very often they will insist on a contract with a limited company.

While the media continues to rightly focus on the Tory sleaze scandal, The Times and other publications shouldn’t lazily use the story around second jobs to attack limited companies. For many, forming a limited company is simply the best structure to use and until we come up with a workable alternative, we mustn’t be so quick to criticize it. As for MPs and ‘second jobs’ – that is an entirely different matter.

Meet the author

Andy Chamberlain

Director of Policy and External Affairs