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HM Revenue & Customs is considering if it should give service providers accreditation so third parties can confidently engage them without fear of owing tax under the MSC legislation. In an online notice, the Revenue said an Audit Standard could help external bodies determine whether a provider’s business model would result in their client companies being MSCs. If so, bodies in the contractual chain, such as recruiters, might be liable for unpaid tax debts under the transfer of debt provisions, spelt out in the MSC legislation. One accountant says that without the audit, agencies must resort to “a guessing game” by using guidelines on how to assess whether an MSC provider operates lawfully. “If the agency guesses wrongly, they could be liable for transfer of debt,” said Barry Roback, chief executive of JSA, a chartered account for contractors. Roback, who called for the audit scheme earlier this month, claims accreditation would reassure recruiters that they face no financial risk if they steer contractors towards HMRC-approved advisers. He said: “As the current guidelines are so open to different interpretations by individual tax inspectors, both agencies and contractors are effectively being asked to play a poker game where HMRC can deal the cards in any way that suits it.” “While I have sympathy for HMRC in its attempt to implement legislation that has been enacted in haste, it is still not too late to salvage the situation. The sooner that accreditation is enabled, the better for all.” But one legal advisor to IT contractors questioned the content and scope of the proposed accreditation scheme Roback has called for, labelled the Audit Standard on HMRC's website. Roger Sinclair, legal consultant at Egos Ltd, told CUK: “In my view, an accreditation scheme, as an attempt to effectively resolve the confusion and uncertainty this dreadfully drafted piece of legislation has created, would be about as useful as a chocolate fireguard. “What, in fact, is it envisaged would actually be ‘accredited’? I don’t see this as a solution that will actually happen.” Asked why HMRC might consider the scheme, Kate Cottrell, co-founder of Bauer & Cottrell, an IT contractor advisory, said HMRC is under pressure to clarify the law. “Not least [from] those firms who have invested significant sums in changing their business models post-April,” she said. “Agencies have also torn up their preferred supplier lists and are now unable to direct contractors for fear of the third-party liability issues.” For Mr Sinclair, the only effective way to deal with bad legislation is to repeal it. “However that would mean someone [in government] making the admission that it was misconceived,” he added, “and that’s not going to happen”. In a similar critique of the anti-avoidance legislation, JSA said HMRC must “change its approach,” presumably by introducing the scheme, if the government is to have any chance of meeting its goals. Ms Cottrell, a former Inland Revenue inspector, said it would be interesting to see how such a scheme would work and how it would be policed, if it is adopted by HMRC. She told CUK: “I expect that no decision will be made by HMRC until they have received replies to the letters sent to those firms that they believe to be MSC providers. “Such replies will give HMRC a great deal of information about the business models out there and whether or not publishing an Audit Standard is in fact possible.” Critics of the proposal will argue that the scheme already exists in the form of HMRC’s Employer Compliance teams, Ms Cottrell said. Meanwhile wording from the Revenue, in a recent online notice, suggests that the negative effect of the MSC legislation is already costing the Treasury a considerable sum of additional unpaid tax, Mr Roback claimed. He added: “We have consistently argued that it was correct to close obvious abuses by some managed service companies – particularly in areas such as supply teaching, - but this particular sledge hammer seems to be cracking some of the wrong nuts.” Sep 19, 2007 Previous Page
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