The Revenue is taking the pressure off the relationship between contractors and recruiters.
Under the managed service company legislation, recruiters and agencies have had to fear making any sort of recommendation to a contractor about what accountant or lawyer the contractor should use. This is because agencies which give recommendations to their contractors who then wind up with managed service companies risk getting stuck with contractor tax debt.
This caused a great deal of trouble, because contractors depend on dialogue with agencies on subjects like these. But now HMRC has relaxed the rules somewhat regarding this debt transfer facility.
Get Your Limited Company First...
It's all explained in a rather long sentence by the Revenue.
According to Guidance posted by the Revenue on October 15 (it's been back-dated to October 12): provided that the recruiter or agency has not, since 6 April 2007, been directly or indirectly involved in the workseeker obtaining the company, then neither the recruiter nor the agency will be liable for any PAYE or National Insurance debt under the transfer of debt provision should it subsequently transpire that the workseeker’s company is a Managed Service Company. In practice this situation is most likely to occur where a workseeker who already provides their services through a company approaches a recruiter or agency.
In practice this situation is most likely to occur where a workseeker who already provides their services through a company approaches a recruiter or agency
HMRC
...Then Call The Agency
So what this means is that you set up your own limited company first, and then call the agency. That way, the agency won't have to worry at all about working with you, or suggesting you use their favourite lawyer or accountant.
Agencies want you to be safe and in good hands--they stay safe that way as well. So they keep Preferred Supplier Lists of accountants and lawyers who will keep to the straight and narrow. With this ruling, agencies can break out these lists again as most of the contractors they work with already have limited companies. This policy will, however, bite some of the less reputable suppliers of companies and services in the industry who haven't really made the necessary changes since the new legislation was adopted.
As the Revenue states: ''The policy is consistent with the aims of the legislation, which is not designed to penalise recruitment companies where they have had no encouragement in the use of a company. There can be no encouragement if the MSC company is already in existence at the outset”. This just means that the law is intended to keep rogue agencies from cutting deals with rogue service providers. And it may well put an end to it.
Good For All Of Us
Adrian Marlowe, managing director of the Hove-based legal consultancy Lawspeed, which specialises in recruitment and contractor affairs, comments: ''this clarification of HMRC policy was warmly welcomed by all the industry and it is an enormously helpful clarification which should assist all employment businesses in identifying cases where there is no risk of debt transfer.''
Marlowe clarifies the practice: ''In practice the policy as explained requires that the company must already be in existence before the worker contacts the employment business, and the individual continues to operate through that company if all risk is to be avoided.”
The individual must continue to operate through that company first set up before contact was made
Adrian Marlowe-Lawspeed
There are still a few nuts and bolts to be ironed out. It's not clear what 'first contact' means in this context; is it a view of the agency Web site, exchange of email, meetings...? But probably the Revenue's more complete guidance will help to resolve these issues. Even as it stands, we can all profit by it.