FCSA criticism supports its members but avoids the real issue, says Lawspeed
In response to the article issued by FCSA today “FCSA challenges Lawspeed on umbrella contract clause”, Theresa Mimnagh, associate director of Lawspeed, said:
“The FCSA criticises a guarantee clause we include in our latest umbrella PAYE contract for use by agencies, and wrongly attributes the guarantee to risks arising only from T&S expenses. The comments from others are also limited to the T&S risk. This completely misses the point. The issues are broader and the contract terms contain precautions against recent uncertainty in the market.
“Our clients require us to advise them on risk and how best to manage it, including what clauses to use. Our exposure to the industry includes working for many agencies and umbrella companies and provides us with a useful overview on developments. The contract referred to is only designed for use with PAYE umbrellas, not any other kind of service provider, and we do not endorse a ‘one size fits all’ approach.
“On the FCSA’s comment that ‘fraudulent information is outside the control of the umbrella company’, this is plainly incorrect. The opposite is the case. From our experience over the last few months the request for an SDC statement, whether ultimately fraudulent or otherwise, usually emanates from the umbrella company. It is the umbrella company that controls the PAYE payment to the contractor. The choice whether to apply tax relief or not is entirely that of the umbrella and the umbrella is in total control. We are aware that requests of this kind are being made both to agencies and hirers, so exposing them to risk. We wholly agree that a guarantee would not be appropriate if the agency demands that tax relief be applied based on a SDC statement from the agency, but we have yet to hear of a case where that has happened.
“We believe that neither agencies nor their hirers want to be exposed to any tax risk, and agencies do not want to work with service providers who may end up competing with them, using information that agencies have provided in referring contractors. This is a basic constituent of any supply arrangement, and the risks have now changed because of the new legislation. Maintaining trust is key and the guarantee helps towards that, we would be negligent if we were to ignore these points. The guarantee does not go any further than what is already a requirement in the contracts, and provides agencies with the necessary assurance in these new circumstances. Putting it another way, why would a service provider director not want to give the guarantee if everything is open and transparent?
“We have made various suggestions to the FCSA, for example to suggest alternative wording or a solution which may be acceptable to protect our recruiter clients against the risks. So far it has not put forward any proposal for us to qualify our advice at all. These issues must be considered and need not affect relationships, however a blanket advice from the FCSA to umbrella companies not to sign the contract might help its members but is unhelpful in the bigger picture as it avoids addressing the real issues.
“Due diligence is another route that we have discussed with the FCSA. However, this may not cover group companies or new setups and some service providers have historically been reluctant to undergo appropriate due diligence.
“Our clients rely on us to help protect their commercial interests, and they can then choose to follow that advice or not as they see fit. In other words, any advice we give is just that, and agencies can themselves weigh up the pros and cons and negotiate accordingly.
“We will be discussing these issues and other tax related aspects of contract supply at our London seminar next week.”
Details at this link http://www.lawspeed.com/Lawspeed-Tax-Seminar-June-2016.pdf