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| CURRENT SECTION :: Money | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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Employment agencies shouldn’t be liable as a “third party” if they do not run managed service schemes that IT contractors sign up to willingly, ATSCo has declared. Proposals to head off plans to make recruitment agents liable for tax that “contractors owe to HM Revenue & Customs” will be submitted to Chancellor Gordon Brown, the association said. They will centre on making recruitment agents exempt from any outstanding tax, contrary to the incoming laws, by drawing up a list of recruiters that have carried out reasonable checks. Under plans tabled by HM Treasury, staffing companies are just one of the potential third parties that outstanding tax can be transferred to, when the legislation takes effect on April 6. Ann Swain, chief executive of the Association of Technology Staffing Companies (ATSCo), described the laws as “grossly unfair”, and predicts they may cost the recruitment industry millions of pounds. “If recruitment companies are not running these schemes and contractors are joining them freely, why should recruitment companies be liable if contractors are not paying the right amount of tax?” “It seems completely contrary to all common principles of justice to make companies that have no legal control over individuals liable for their tax,” she said. In line with other freelance experts, the association said many contractors will circumvent the legislation by setting up their own personal service company, thereby undermining the measures. According to HM Treasury, the regulations are needed to head off the 260,000 contract workers who use managed service companies to illegally reduce paying income tax and National Insurance. The government believes workers who operate through MSCs – companies managed by third parties – do not exercise control over these companies, so are employees, not genuinely self-employed. Ms Swain said her proposals to the Treasury make clear “that recruitment companies should have a statutory defence when contractors’ employment status is challenged.” “As long as recruitment businesses make reasonable checks, they should not be responsible for any outstanding tax owed by contractors,” she said. The government was accused by the group of trying to make the recruitment industry liable for contractors’ tax affairs when it introduced IR35, ‘but it eventually backed down.’ “Six years later [we are] facing the same tax grab on the recruitment industry,” ATSCo said in a statement. “The attitude seems to be that if Revenue & Customs cannot ensure contractors comply with tax law, because it is too difficult to apply, other parties need to be made to pay. IR35 has clearly failed, but the government is at a loss how to replace it.” In light of the legislation, a positive short-term gain for contractors is the possibility that client companies may come under pressure to pay higher rates to compensate for the reduction in contractors’ take-home pay. But this too may have negative implications for both the UK’s recruitment and IT industries. ATSCo warned: “If using contractors becomes more costly, public sector projects like the NHS IT programme, which are heavily dependent on flexible labour to reduce employment costs, and are battling skills shortages, will inevitably suffer.” Previous Page
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