nyman linden - ask the accountant

“ Many people are still making ill-informed and somewhat irrational statements regarding the legislation on Managed Service Companies – it’s not complicated”
Andrew Plaskow FCA

For this issue of intouch, Andrew Plaskow – a Partner at Nyman Linden Chartered Accountants and head of the firm’s UK Contractor Division – has decided to address a situation that appears to be shaking the UK contracting market down to its foundations. The firm has been busy calming agencies, contractors and end clients on a piece of legislation that is straightforward.

In my answers to your questions posed in issue 9 of intouch, I explained how the Treasury used this year’s Budget to not only wipe out the tax advantages to contractors operating in the UK through a Managed Service Company (MSC), but to also openly declare that Personal Service Companies (PSCs) will not be within the scope of these measures. In the six months since the legislation came into being, these objectives have not changed.

So, if you are grossing more than £35,000 per year and have been operating through an MSC, you should definitely be contacting a regulated firm of accountants to ask about the potential benefits of working through your own PSC. Modesty forbids me from recommending Nyman Linden Chartered Accountants as your first port of call. Conversely, if you are earning less than £35,000 a year, my advice is still to continue operating through the TAC or TPS PAYE service or through an umbrella company.

In Her Majesty’s Revenue & Customs’ (HMRC) own words, the prime objective of the MSC legislation is to, “curtail the mass non-compliance by MSC providers whose core activity was to disguise employment income of individual workers who could not normally satisfy the criteria of being in business in their own right”.

With TAC and TPS being notable exceptions, the vast majority of recruitment agencies have abandoned their Preferred and/or Approved Supplier Lists of tax advisors like hot potatoes and still refuse to endorse the PSC as a legal and legitimate structure to contract with

Contractors seeking help from those recruitment agencies are simply told to either go through an umbrella company or “seek professional advice”. As the umbrella option is not always appropriate, they are left surfing the internet in the hope of finding the service and service provider that best meets their individual needs. In particular, for someone who has never previously needed a tax efficient operating structure, the thought of trawling the internet, understanding what really underpins the selling copy and, when you meet certain providers, understanding their jargon, must all be draining. No wonder so many contractors end up in inappropriate structures or with unsuitable advisors or, in a growing number of cases, working under illegal offshore tax regimes.

It is quite ridiculous for recruitment agencies to adopt this ‘stand-off’ approach

There are too many recruitment agencies continuing to distance themselves from the financial affairs of their contractors for fear of being inadvertently caught out by the effect of the new debt transfer liabilities, which makes them liable for contractors’ unpaid tax. For those agencies I will quote from a recent HMRC statement, “…Recruitment Businesses are refusing to deal with Service Providers who provide service companies (PSCs) to workers. It is clearly important that Recruitment Businesses consider the implications of the transfer of debt provisions and take reasonable steps to mitigate their exposure to those provisions. However, it is important to remember that the legislation was …. not introduced to stop those genuinely in business on their own account providing their services through service companies (PSCs). HMRC has provided guidance to help Recruitment Businesses take a balanced view on their risk under the transfer of debt provisions.”

TAC and TPS are among the few to follow this advice having initiated a simple but effective ‘due diligence’ process to ensure a PSC is not an MSC in disguise. If such high profile and successful agencies have been able to adopt this process, why haven’t the rest?

Let me be absolutely clear, the legislation provides a specific exclusion for professionally qualified persons who are regulated by a regulatory body – as are all the partners at Nyman Linden Chartered Accountants

This exemption only applies because the firm is merely providing professional services and is NOT involved with the PSC. So, whilst a recruitment agency has to consider the risk of transfer of debt when encouraging contractors to seek advice from Nyman Linden, such a debt can only be an issue if Nyman Linden was involved in the PSC (which it is not) and HMRC was unable to recover the debt from the contractor.

It is a fact that TAC and TPS have always wanted their contractors to benefit from quality, specific, regulated advice that both agencies recognise is best obtained by encouraging them to speak with a firm of Chartered Accountants, highly experienced in the contractor market. As many of you reading this article will recall, Nyman Linden attended TAC and TPS contractor road shows earlier this year to explain the impact of the new legislation and cover other areas of interest to contractors and attending executives from the agencies’ clients.

Unlike TAC and TPS, many other recruitment agencies have inadvertently opened the floodgates to non-compliance with innocent contractors being led, none the wiser, into inappropriate tax regimes with potential unexpected tax debt. Nyman Linden and the government now see a wide opening for disreputable organisations to freely walk in and seduce contractors into dubious schemes – many of them located offshore. These will certainly fuel the risk of recruitment agencies being caught by the transfer of debt provisions.

Within a relatively short period after this year’s Budget, former unregulated MSCs had reinvented themselves overnight as ‘professional accountancy service providers’ inferring they are regulated, which they are certainly not!

Not only did they claim instant service change from ‘managed’ to ‘advisory’, they were also asking us all to believe their people culture and computer programmes had radically altered. Hopefully, HMRC will soon see through these guises. Indeed, HMRC is shortly issuing letters to such service providers, whom it believes are MSC providers, asking them for information about their business models and the numbers of clients within each model. Although the provision of information is purely voluntary, HMRC expects “a good response”. HMRC has told Nyman Linden that it is aware of “several providers who have restructured their services and we will be monitoring compliance on an ongoing basis”.

During a recent meeting of a small group of recruitment agencies and a senior HMRC official, the agencies called for the government to audit tax service providers and then issue a list of approved ones. Contrary to subsequent reports on various contractor sites, I can inform you this call was rejected because “HMRC simply does not have the manpower resource to conduct such compliance audits.” However, the HMRC official was receptive to the idea of an audit process by the regulated accountancy profession to vet all service providers and he promised to refer the idea to HM Treasury. This went down well with the agencies who, up to this point, had been unfairly snubbing the very profession that could be vetting their future. Watch this space.

Questions can be addressed either by letter or by email to: ‘Ask The Accountant, c/o The Editor at intouch (email: intouch@taceurope.com). We regret that we are unable to respond to unpublished letters and, in order to facilitate publication, letters may be edited. Nyman Linden is a highly respected firm of Chartered Accountants who specialise in providing advice and services to individuals working on a freelance basis. For further information about how Nyman Linden can help you, call them on 020 7535 1500. Nyman Linden, TAC Europe, TPS and their respective employees cannot be held responsible for any actions undertaken as a result of the opinions expressed in this feature. As individual circumstances vary, you are advised to seek individual expert advice.