Mr. Niall Cody:

The area of personal service companies, PSC, and managed service companies, MSC, is a very challenging area on which we have been very active. Deputy Boyd Barrett asked about employment and bogus self-employment. Members are familiar with our work on the contractors project, which was the subject of a review by the Comptroller and Auditor General. It is practically impossible to examine limited liability and company status. A consultation process in which we had a huge support role and which was sponsored by the Departments of Finance and Employment Affairs and Social Protection has been finalised. The report in that regard is soon to be published. The challenge in respect of PSC and MSC-type structures is that the employers' PRSI contribution is the primary fiscal incentive. There are issues in terms of expenses but the 12.5% tax rate and close company surcharge should equalise some of that. The employers' PRSI contribution is the main fiscal driver. There are other drivers in terms of employment rights and workers' rights. There are different motivations and incentives in respect of personal service companies for a person who is well-paid and other operations whereby people are probably being forced into a process. It is hugely challenging to examine, in particular where people enter into an arrangement with a limited company, which is an entity in its own right. I usually say such issues are policy matters and I do not have a personal opinion but I think there is a need for a legislative process in regard to the need for the payment of the equivalent of an employer's PRSI contribution by a principal contractor in some yet-to-be-defined circumstances. I am not solely referring to construction. It is a complex area and no country has managed to implement such legislation. Members are familiar with the Taylor report, which considered some such aspects in the United Kingdom. It is a matter for legislation.

If there is to be legislation and if it is implemented we will then have a process which we will be changing again in a few years. It is a bit like the tax planning process. What we do is look at employment of people, employment for people and sole traders, and what is deemed to be bogus self-employment. For example, last year we did 2,167 visits to construction sites and interviewed 11,700 people. We reclassified probably only 340 people, but 850 people on the sites were neither on the PAYE system nor on the subcontractor system. We got them registered. We registered various people as employers. We have a highly labour intensive process that we take very seriously. There is no doubt that there are many sectors, such as software engineering, with personal service companies. There are also managed service companies, with probably six directors as part of the company structure and often they do not know one other. These structures are put in place. When we started looking at the contractors project we saw inflated expense claims, and this is what we have challenged.