(The full citation is Section 61B of The Income Tax (Earnings
and Pensions) Act 2003 (ITEPA 2003) as amended 6 April 2007).
Since it was released on 6th December 2006, the
Draft legislation entitled “Tackling Managed Service Companies” has
generated a great deal of worry as well as column inches in the
business pages.
In a nutshell, this document covered how the Treasury wished to
deal with contractors who supply their services through
managed service companies (or MSCs as
they are known) including both composite and umbrella limited
companies.
Further to that date there has been more consultation plus a
further piece of legislation covering the third party debt
transfer, which was released during February 2007.
On 21st March 2007 the Chancellor released the Budget which
confirmed that he would be pushing forward with the legislation on
how to tackle MSCs. This would come into force as of 6th
April 2007, meaning that current contractors working through
MSCs would be liable for unpaid (or underpaid) tax and
national insurance if they have been or are seen to be caught by
the MSC legislation.
The third party debt transfer which was expected to come in
simultaneously on 6th of April 2007 has fortunately been pushed
back and is now due to take effect from the 6th of January
2008.
The third party debt transfer legislation is probably the most
significant to Advanced Resource Managers (ARM) and to end users.
The third party debt transfer effectively enables the Treasury to
pursue other parties that have been involved in utilising the
services of MSCs for any unpaid tax and NI from 6th
January 2008 onwards. From 6th April 2007 through to 5th January
2008 the Treasury will pursue only contractors supplying services
or any directors or scheme providers of the MSCs
themselves for any unpaid tax and NI.
This therefore means that Advanced Resource Managers, and
employment businesses generally, have until January 2008 to
determine whether or not we are actually being supplied services
through an MSC which could potentially run the risk of
being caught for unpaid tax and NI.
It is not illegal for us to Contract with an MSC
however it does mean that from the 6th January 2008 onwards we
could be liable for any shortage in unpaid tax and NI. We will
therefore be looking to gain a better understanding of the
companies with which we are contracting, and, as it stands, we will
be happy to contract with the following parties:- PAYE workers,
Umbrella (where tax and NI is paid on all earnings) and PSCs
(Personal Service Companies).
Therefore this gives our contractors many options in terms of
the way that they may supply their services to us and our end
clients. Obviously, from January 2008 onwards (and in the meantime
in preparation) any end clients who are currently using direct
contractors really should seek independent legal advice over the
kinds of companies that they are contracting with or alternatively
look to use an employment business to further mitigate the
risk.
We feel, as does the Recruitment and Employment Confederation
(our governing body) that utilising an employment business such as
Advanced Resource Managers offers another level of protection to
end clients. This is because firstly we are responsible for, and
are making sure that we are, contracting with the right limited
company, and we will be doing this every day as part of our normal
working practice. Secondly because there is another layer of
protection between the contractor and the end client, so that
should the Treasury look to pursue unpaid taxes from 5th January
2008, they will look at all the parties that have been involved and
have benefited from the supply of the services via the
MSC. In practice, this would mean that they would be more
likely to pursue us before pursuing our end clients. However, once
again it is in our interest to make sure that we are contracting
with companies that are not seen as MSCs.
Contractors remain an extremely
cost effective solution to resource needs and fortunately ARM has
all the flexibility that is required to engage with a number of
different contractors at different skill levels.
Therefore please feel free to contact your consultant, ARM’s
legal team or me, if you have any questions at all on this
matter.
We are able to advise to a certain extent however when looking
at our current contractors’ requirements we are not able to give
legal or tax advice. However for an end client what we can do is
look at helping them to put an element of protection between any
direct contractor and the end client themselves. Hence, if you have
current contractors supplying their services directly, feel free to
contact me on 02392 228241 or paul.martin@arm.co.uk to discuss
how we can help mitigate your risk.
Advanced Resource Managers has seen many changes in the
recruitment industry over the years and we have found a number of
different ways to work and comply with legislation and feel that
this current legislation will not impact the market place for
us.
We already have put measures in place to protect ourselves and
our clients, and will continue to try to improve these measures.
However, we must emphasise that it is extremely important for end
clients to look at who they are contracting with or alternatively
speak to an organisation such as ours to look at these to add an
extra element of protection between client and contractor.
By Paul Martin, Business Development Director, Advanced
Resource Managers Limited
N.B.
This document is not intended to, nor held to
be formal legal advice. ARM will not accept any liability
whatsoever resulting from or in connection with the application of
this document as if it were formal legal advice.