The government has confirmed that its use of the Managed Service Companies (MSC) legislation to recover tax and National Insurance has escalated significantly in the past year.
Recruitment law specialists Lawspeed submitted two Freedom of Information requests to HM Revenue and Customs (HMRC) and discovered that the number of enquiries alive at April 2012 was 216, but in the seven months to November 2012 the government commenced a further 644 enquiries.
142 debt transfer notices have been issued since April 2011 so this is a key area of concern for recruitment supply companies that work with service providers.
Tax transfer risk
Under the MSC legislation any contractor company that pays its worker more than employed levels of income can be regarded as a Managed Service Company, if it appears that a provider promotes the use of the company as a tax avoidance vehicle and remains involved with that company.
If HMRC is of the view that a company fits the criteria it is possible for the resultant underpaid levels of tax to be transferred to third parties including any referring agency and its directors.
Adrian Marlowe, Director of Lawspeed explained: “The law in this area is quite technical, and the problem that agencies face is, whilst providers may be able to explain their models, the explanation may not always be correct.
“Also it is not necessary for HMRC to have to prove its case beyond doubt for a debt to be transferred. Once a notice has been issued it is for the agency and/or its directors to show that the transfer is inappropriate, which can be difficult if the agency has referred the worker to the provider concerned.”
Lawspeed believe the figures show that more companies are being investigated thus implying that “suspect” tax avoidance arrangements are once again on the increase, possibly because since 2007 there has been little apparent activity by HMRC and complacency has settled in.
Marlowe said: “Agencies should be careful to independently check the service providers they work with to assess the level of exposure to tax and national insurance transfer. Lawspeed offer a unique Service Provider Audit (SPA) which will review the level of risk to agencies and is entirely free for recruitment businesses.”
For more details on what a SPA could do for you click here or call us direct on 01273 236 236.