PRESS RELEASE
3rd September 2007
Accountancy and Umbrella service providers urgently need Government accreditation in order stop the flow of contractors working under illegal tax regimes, according to Barry Roback, Chief Executive of JSA, one of UK’s leading Chartered Accountants specialising in the contracts market. Accreditation is required to reassure recruitment agencies that they are not at financial risk if they steer their contractors towards HMRC-approved advisers.
The Treasury effectively put providers of managed service companies out of business in April when it introduced legislation – known as Chapter 9 ITEPA – to shut down Managed Service Company schemes, which it claimed, were ‘disguised employment’.
However the HMRC is clearly now concerned that, since April, recruitment agencies have largely distanced themselves from the financial affairs of their workers for fear of being inadvertently caught out by the effect of the new debt transfer liabilities, which potentially makes them liable for contractors’ unpaid tax. This is evidenced by HMRC’s recent notice reminding agencies that the legislation was not targeted at them but at ‘workers seeking to avoid employed levels of tax and NICs’.
“The reason HMRC is so concerned” says Roback “would appear to be that because so many agencies have understandably abandoned their PSL’s and/or Approved Supplier Lists, the floodgates have been let open to non-compliancy, with many innocent contractors being led none the wiser into inappropriate tax regimes with potential unexpected tax debt. This has led to a great opportunity for disreputable organisations to step in and seduce contractors into dubious schemes – many of them located offshore.”
He continues: “The guidelines issued to agencies by HMRC are so non-specific yet at the same time so threatening and potentially all-embracing, that it is hardly surprising that agencies are 'ducking’ out and washing their hands of the whole issue. The result is that there are clearly many contractors out there working either in inappropriate circumstances, or quite illegally through offshore arrangements.”
Roback calls for HMRC to introduce an accreditation scheme for service providers, which would give agencies the confidence to re-establish a Preferred Suppliers List without fear of financial reprisals. “HMRC must already have a set of compliant criteria ready – if it doesn’t, how on earth are expected to implement the current legislation? At the moment, HMRC is effectively inviting agencies to play a ‘guessing game’ whereby they give some ‘clues’ on how to assess whether an MSC provider is legitimate, but warn that if the agency guesses wrongly, they could be liable for transfer of debt. As the current guidelines are so open to different interpretations by individual tax inspectors, both agencies and contractors are effectively being asked to play a poker game where HMRC can deal the cards in any way that suits it .” “While I have sympathy for HMRC in its attempt to implement legislation that has been enacted in haste, it is still not too late to salvage the situation. The sooner that accreditation is enabled, the better for all.”
Barry Roback concludes that HMRC must change its approach if the new legislation is to have any chance of meeting its goals. “Judging by the tone of the notice, it would suggest that the negative effect of the legislation is already costing the Treasury a considerable sum of additional unpaid tax. We have consistently argued that it was correct to close obvious abuses by some managed service companies – particularly in areas such as supply teaching, etc - but this particular sledge hammer seems to be cracking some of the wrong nuts.”
For further information contact Robin Liston, press relations adviser to JSA on 0208 883 7314/ 07740 829171 or robinliston@pobox.com or Barry Roback, Chief Executive of JSA on 01923 257202 or roback@jsagroup.co.uk
The JSA Group Of Companies, JSA Services Ltd, JSA House, 110 The Parade, Watford WD17 1GBW. Tel: 01923 257200