Whatever investment you plan to make it is always wise to check the facts behind the proposal, particularly if the advice source is not regulated, and history shows that a failure to do so can be very expensive, particularly when it comes down to tax avoidance.
Those contractors who invested in the pay by loan scheme probably thought it was a great plan, only to find HMRC introducing legislation to retrospectively snatch back all the gains plus penalties on top. The advice the participants relied on was determined by a strict and theoretical interpretation of the law that had the effect of depriving HMRC of PAYE and NICs – in that case on the basis that a payment was not a payment but a loan. The same could be said of the many trust schemes which HMRC determined were effectively false. HMRC may be slow in getting to grips with schemes but it is not shy to attack when it comes down to it.
Let’s now consider the Managed Service Company (MSC) legislation which makes third parties jointly and severally liable for unpaid levels of PAYE and NICs. This in simple terms is where an ‘accountancy’ organisation helps contractors to operate via a company that the accountancy organisation manages. Management includes taking regular steps that in practice most businesses probably would not normally expect their accountants to take for them, whilst at the same time advocating the benefits of working via a company. Only companies that may not be genuinely in business on their own account are likely to use such organisations, and that may be the point that HMRC is getting at when it introduced the legislation in 2007, to address what it saw as yet another tax avoidance scheme. So why would anyone trust an ‘accountancy’ organisation that fits the bill and then help that organisation succeed by referring workers to it, so placing their own heads on the MSC liability block?
The answer can only be a belief that the rules don’t apply, or an ignorance of the law or a willingness to risk it. Either way a quick check of the facts around the tax would provide a safer path, instead of relying on the organisation’s own interpretation of the law or claimed credentials such as membership of a trade body (which may rely on the same interpretation). So in the case of the MSC rules, which HMRC is now overtly enforcing, the interpretation of whether an organisation is merely providing accountancy services is at the core of the issue. Many hirers and agencies are likely to have relied on assurances when referring workers to accountancy providers they deal with. That faith may be misplaced. In a battle between HMRC and an organisation that provides the management I mention above, my money would be on HMRC succeeding, with consequences for all involved.
Would you like to know more about the relevant rules, identifying when, how and why they apply, along with what steps you can take to minimise financial or other risks…
Adrian, a highly experienced lawyer, founded Lawspeed in 1997. He is responsible for developing our extensive portfolio of products and services, including the widely used Lawspeed contract templates. Adrian is an expert on “recruitment law” and specialises in contracts, regulatory compliance, employment status and dispute handling. He is chair of the trade body the Association of Recruitment Consultancies, the only lawyer lead recruitment trade body in the UK. Adrian and his co-director Ravi devised Standards in Recruitment as a vehicle for helping drive up standards and compliance in the industry.
Adrian is our lead in discussions with the government over regulatory evolution. Apart from assisting with client support, Adrian’s primary role is research and development into methods of business delivery, our latest service Proterms being his most recent project. Adrian heads our IR35 lawyers team.