HOT TOPIC
Adrian Learer, MD of Chartered Accountants plan.it speaks about a thorny issue for recruitment agencies - tax compliance for contractors.
THIS MONTH: RECRUITMENT AGENCIES AND TAX COMPLIANCE FOR CONTRACTORS
• Why is tax compliance such a hot topic currently? AL: The recession and resulting austerity measures have created enormous pressure on the government to raise revenue - and a feeling that everyone should pay their fair share. In addition, the questions of morality and legality are being discussed in connection with the level of tax individuals should pay. In fact, tax avoidance schemes and general tax compliance are now more prolific in the media spotlight than at any time during my 30+ year career as a Chartered Accountant. • Are recruitment agencies recommending non-compliant tax solutions? AL: Yes, unfortunately this occurs regularly, although often unknowingly. Recruitment agencies aren’t tax specialists so it’s difficult for them to know whether the solution being offered to them or their contractors is truly compliant. In addition, commercial pressures are pushing them towards solutions that have financial incentives attached - and they are sometimes turning a blind eye to the potential implications. • Are there consequences for recruitment firms recommending non-compliant schemes? AL: Yes. The 2007 Managed Service Company (MSC) legislation introduced the concept of debt transfer, whereby contractors’ unpaid tax liabilities can, in certain circumstances, be transferred to ‘associated’ parties - including recruitment agencies. Also, where contractors are paid (directly or indirectly) via offshore arrangements, liability can be transferred to the recruitment agency.
• What are the advantages to a recruitment agency of recommending or working with one accountant to provide this service?
If a contractor is deemed to be caught by MSC rules and to have underpaid tax by £5,000 and an agency has 500 contractors under such a scheme , with penalties and interest, an HMRC claim in excess of £500,000 could arise – possibly bankrupting an agency and its directors. There are a number of such claims currently being processed through the courts.
AL: Working with a range of providers is administratively cumbersome and increases the burden of monitoring their activities and compliance. Furthermore, in view of the points above, it is vital that agencies have a close working relationship with a specialist firm of accountants who they can call upon for advice as legislation and working practices change. Selecting one trusted provider after a process of due diligence makes the most sense all round.
• What are the warning signs to look out for in a company offering umbrella / limited company services? AL: Unfortunately anyone can use the term ‘accountant’ and many providers aren’t formally qualified. Accounting and tax services for contractors is a specialised area encompassing complex and rapidly changing areas of tax and employment law that are often interrelated. Many providers simply don’t know what they are. You should always be wary of: • Providers with no formal qualifications or recognised industry accreditations (FCSA etc.)
Adrian Learer FCA is Managing Director of Chartered Accountants plan.it. The company has worked within the sector for 17 years to ensure that both contractors and recruitment agencies are compliant. plan.it is offering a free initial consultation for recruitment agencies.
• One size fits all solutions • Solutions that seem too good to be true – they generally are • Any solution involving an offshore component or an offshore provider • Pushy salespeople offering incentives to recruitment consultants
Visit www.planitservices.co.uk e-mail garry.keith@planitservices.co.uk or call 020 7251 8690 for more information.