Contractors could benefit from provider audit scheme, JSA says

When a contractor goes to see an accountant or a lawyer, or any other service provider, it would be nice if that contractor had some assurance that the provider is not a managed service provider under the terms of the recent law. Such firms incur heavy penalties under legislation enacted this year.

Agencies Can't Help

It would also be nice if contractors could ask the agency they work with for advice on which service providers to use. But they can't today, because the same new legislation makes it too risky for agents to recommend anyone. If they do, they risk being made liable for contractor tax debt.

This situation clearly isn't good for the industry, especially because contractors who can't get advice are increasingly being lured into working with dodgy providers.

So it would be good for the entire industry if service providers could be cleared of any taint of managed service company status. And it is good news that HMRC is considering such a scheme.

Good For The Industry

''What we are talking about is a scheme whereby 3rd party auditors, presumably the so called 'Big Four' accountants, would be invited by various accountancy and umbrella service providers, to audit them in order to show that they are not tainted with managed service company status,'' says Barry Roback, chief executive officer of the Watford-based chartered accountancy firm JSA, which specialises in contractor services. ''Clearly a specific set of standards for this audit will need to be agreed upon by the auditors.''

Such an audit could make life much easier for us all. Says Roback: ''Agencies have greatly benefited in the past from being part of a strong and interwoven supply chain linking them with end-users, contractors and their specialist accountants.

HMRC Approval Not Needed

But some believe that HMRC approval would be necessary to make such a scheme work. Writing in this space recently, Adrian Marlow, managing director of the Hove-based legal consultancy Lawspeed made that assertion. Roback points out that this is not really the case.

''Such a view runs counter to the spirit of the legislation.'' Roback says.

An Unintended Situation

''HMRC has created an unintended situation which, to their credit, they are now looking to rectify. The new managed services legislation was clearly intended to drive the cowboy MSC operators out of the market and in that respect it has been, at least for the time being, largely successful. However HMRC has now realised that by threatening agencies with debt transfer liabilities if they are anyway 'involved' with service providers, they are breaking down the interwoven supply chain that has been so useful in the past.''

Says Roback: ''There have been various statements emanating from HMRC in which they repeatedly state that an agency will only be considered at risk for debt transfer on rare occasions and where they have actively encouraged contractors into a MSC for their own gain.''

HMRC Serious Consideration

The Revenue cannot accredit providers officially; it doesn't have the staff. And they can't offer official approval of an audit scheme that they don't run themselves. This would open such a scheme up to abuse.

But given the spirit of the law, and the statements made by the Revenue, it is clear that an audit scheme would be most useful, and that the Revenue would consider it most seriously. ''It is now entirely clear that the Revenue would give such a scheme very serious consideration,'' Roback says.

Spirit of the Law

In fact, at a recent conference held by the London-based Association of Technology Staffing Companies, a representative of the Revenue specifically stated that, should an audit scheme be adopted, the Revenue would be almost certain to accept its results on a practical basis. The representative explained that the law was not intended to attack legitimate service providers, and an audit would be a fairly clear indication of those who didn't require attention.

So there is a very good case to be made for a provider audit scheme, one that Roback has very convincingly supported. It clearly requires further consideration throughout the industry.