Onshore legislation: warning over hidden risks to staffing firms
Optionis, home to professional employment provider Parasol and contractor accountant ClearSky, believes agencies requesting detailed information from suppliers about Limited company contractors are at risk from the Managed Service Companies (MSC) legislation.
Jeff Blakemore, a director at Optionis, said: “In light of the onshore employment intermediaries legislation, a growing number of agencies that place Limited company contractors are naturally attempting to ensure that they hold all of the necessary information on those individuals and their businesses.
“HMRC is reviewing a reduced reporting requirement for personal service company (PSC) payments. However, in the meantime, by demanding that accountancy providers hand over information such as a contractor’s National Insurance (NI) number and the hours they have worked, an agency could inadvertently trigger the MSC legislation and eventually be hit with an unexpected tax bill by way of debt transfer.
“This is because, in HMRC’s eyes, when one company possesses that level of information on another, and readily passes it on to a third party, there is a strong suggestion that an MSC structure is in place. Data protection laws are also a cause for concern.
“Additionally, any attempts by agencies or accountants to dictate or influence the structure of a contractor’s Limited company – for example by insisting that no new directors are added – would act as a red flag for HMRC. Worryingly, such attempts are becoming increasingly common.
“Our advice to agencies is to be wary of any contractor accountant that freely hands over NI numbers and other potentially sensitive data regarding its clients, or that agrees to influence the business decisions of its clients with regard to company structure.”
Blakemore added that, in order to avoid being caught by the MSC legislation, staffing firms should bear in mind that legitimate contractor accountants maintain a relationship with their contractors similar to that between any high-street accountant and its small business clients.
“No one would expect a small, town-centre accountancy practice to keep a record of the NI number of every business owner it has helped to set up a Limited company, or to know how many hours each of its clients worked in the past week”, he said.
“Nor would the accountant instruct the client not to change the ownership structure of their business. Similarly, the fact that a contractor accountancy firm has helped an individual set up a Limited company does not mean that it will monitor his or her working hours.
“I am concerned that agency compliance with MSC legislation could be compromised unless there is a change in mindset regarding Limited company contractors and their accountants.”
The MSC legislation was introduced in April 2007. It applies to individuals providing their services through intermediaries that meet the definition of a managed service company.
All payments received by individuals deemed to be providing their services through MSCs are subject to PAYE and NI contributions. Under the legislation, the burden of unpaid debt can be transferred to recruitment firms deemed to have encouraged or facilitated the MSC scheme.