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| CURRENT SECTION :: Money | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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Tax inspectors may “chance their arm” by trying to bring limited company contractors into the scope of incoming laws designed to crack down on managed service companies. Issuing the verdict yesterday, the Professional Contractors Group said only a pledge by ministers could now alleviate fears that April 6 legislation may penalise limited company owners. Potentially at risk are firms that outsource their accounting, registered office and administrative needs, as the serving entity may represent a “scheme provider,” the PCG said. Limited companies that export such functions are not currently within the scope, but the group believes “it is possible that HMRC might try to argue” the recipient company is covered. In any ensuing dispute, the ‘control’ issue would probably defeat such an interpretation, but PCG wants a formal ministerial assurance that no such attempt will be made from HMRC. After all, it is “entirely plausible, based on past behaviour, that HMRC’s inspectors ‘on the ground’ might attempt to chance their arm in this way,” the PCG said yesterday. The concern was tabled in the group’s written response to the government’s proposed measures to tackle Managed Service Companies, which it says are “sound,” in principle. However for the draft legislation to be a success, it must be postponed for six months, while the 260,000 workers using MSCs must be exempt as a taxable third party, the PCG said. “If these new rules work properly the provision to the worker of tax advantages by the MSC will be impossible, and it is unfair to provide a back-up clause to penalise the worker, seemingly just in case the main body of the measure fails,” the PCG said. “Moreover, in the scenario whereby the MSC has closed down without paying the necessary monies to HMRC, it is entirely possible that it nonetheless has deducted them from payments made to the worker: any worker in this situation who is then pursued by HMRC will be obliged to pay tax twice on the same revenue. This cannot possibly be right.” Also in need of policy-makers’ attention is the absence of any fixed hierarchy for HM Revenue & Customs to use when it seeks to collect tax from “third parties.” If workers are potential parties the MSC’s outstanding tax can be transferred to, as the draft states, the PCG wants to know where they will feature in the order of taxable parties. The wording of the current draft implies workers will be last on the list of liable third parties, which include employment agencies and client companies. But the implication needs firming up in the eyes of the PCG, otherwise, the group says, MSC workers will be ‘easy pickings’ for tax inspectors. “MSCs and scheme providers (and their office-holders) are to be pursued for outstanding monies first of all: should that fail, recruitment businesses, end-clients and workers may be pursued,” the PCG said in its written response. “The draft legislation, however, gives no order in which HMRC should approach these groups. In practice, HMRC will always approach the worker first of all as, unlike the recruitment business or the end-client, they will not have a legal department who can fend off such an investigation: the end result will be HMRC being allowed to ‘pick low-hanging fruit’.” The group recommended that the statute should specify that HMRC must approach recruitment agencies and end-users in a set order and, in line with its earlier proposal, “not transfer debt to the workers provided at all.” David Ramsden, group chairman, reflected on the draft legislation: “With these changes, we believe the measure will be workable; without them, it won't.” Like previous opportunities to speak directly to government, the group reiterated its call for reform of tax and employment status. “The hopeless confusion around employment status in the UK is the root cause of tax measures such as this and IR35,” Mr Ramsden said. “By tackling this and clarifying employment law so that disguised employment is no longer possible, the government will be able to introduce the simplification that the tax system so desperately needs.” Previous Page
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