FCSA and Lawspeed clash over T&S rules

A contractual war of words has broken out between recruitment law firm Lawspeed and industry body The Freelancer and Contractor Services Association (FCSA).

Firing the first shot earlier this month, the FCSA attacked a “wholly unreasonable” clause that the firm has put in its new umbrella contract, and said its brolly members would reject it.

Seemingly designed to reassure recruitment agencies, the clause in the PAYE contract by Lawspeed requires brolly directors to give agencies in the chain their personal guarantee.

Against what, or to what effect, is disputed by the two warring parties. FCSA says the clause seems to be a guarantee against any risk arising from Travel and Subsistence expenses relief.

But Lawspeed says that while the guarantee “does not go any further than what is already a [contractual] requirement”, it “misses the point” to think that it relates only to the T&S rules.

According to Lawspeed’s Theresa Mimnagh, it actually covers the risk of any tax liability; the risk of the brolly cutting out the agency and the risk of the brolly then being a competitor.

As to protecting these “commercial interests”, Mimnagh said: “Maintaining trust is key and the guarantee helps towards that, we would be negligent if we were to ignore these points.”

Heading off the claim that the clause is a burden on umbrella directors, she asked: “Why would a service provider director not want to give the guarantee if everything is open and transparent?”

In a statement supporting the FCSA’s objections, another law firm -- Brabners LLP -- seems to answer: “Making a personal guarantee in the majority of cases [is] unnecessary.”

And Squire Patton Boggs, also a law firm, sided with the FCSA too: “A personal guarantee in favour of the agency appears extreme in the context of the T&S rules,” it said.

Much of the association’s stance (and that of its two supporting legal firms), seems based on its understanding of the T&S legislation and its transfer of debt provisions.

It claims that the “only instance” where a tax liability can be passed to an agency is if it provided fraudulent information regarding the ‘SDC’ status of a worker to the umbrella

“[On this basis], the provision of fraudulent information is outside the control of the [brolly]” said FCSA, so “it is unreasonable to require umbrellas to mitigate against this risk.”

Yet the basis isn’t sound, according to Mimnagh. “The FCSA’s comment that ‘fraudulent information is outside the control of the umbrella company’…is plainly incorrect.

“The request for an SDC statement, whether ultimately fraudulent or otherwise, usually emanates from the umbrella”, she said. “The umbrella is in total control.”

In line with her latter comment, it is the umbrella that controls the PAYE payment to the contractor, and it is the umbrella that decides whether to apply tax relief to T&S expenses.

Where a guarantee would not be appropriate, Lawspeed acknowledges, is in the currently unheard of instance where an agency demands that relief is applied based on a ‘SDC’ statement from itself. 

Continuing with this more conciliatory tone, the firm said that agencies can “choose to follow” its advice -- “or not, as they see fit.” It pointed out: “Any advice we give is just that.”

And since its clash with the FCSA, Lawspeed has recognised the new T&S tax rules for agencies as “highly complex” and “knotty”.

But it still says the rules pose “a range of risks and liabilities.” Seeming to reinforce its stance further, the firm said: “A blanket advice from the FCSA to umbrella companies not to sign the contract might help its members, but is unhelpful in the bigger picture as it avoids addressing the real issues.”

Julia Kermode, FCSA chief executive, countered: “Umbrella firms with robust legal and compliance processes are unlikely to agree the terms, thus Lawspeed clients that do not amend this contract term will be precluded from the protection of working with the most reputable firms in the sector. This could ultimately put the agency and its supply chain at risk.”

The association believes that running proper ‘due diligence’ is the key for agencies wanting to avoid any fallout from the T&S rules.  

However, when presented with this suggestion, Lawspeed warned: “This may not cover group companies or new setups and some service providers have historically been reluctant to undergo appropriate due diligence.” 

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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