Budget Note – MSC Legislation Changes

Aside from the increases in beer, wine, cigarettes and duty on most polluting cars, the second most important issue for you will obviously be the MSC legislation update. The Government has confirmed that legislation will be introduced to achieve the objectives set out in the consultation document. But it is responding to key concerns raised during the consultation and will: strengthen the definition of a Managed Service Company (MSC) to give greater clarity and certainty; amend the debt transfer legislation to make clearer that those simply in receipt of the services of a worker operating through an MSC are not within its scope; and delay the application of the debt transfer legislation to third parties (other than MSC scheme providers, and directors, office holders or associates of the MSC) to allow more time to make the necessary changes to their operations. Despite earlier Treasury denials that there would be any…

8th February 2007 MSC consultation phase 2 – Government releases third party debt provisions

Following the consultation announced on 6th December 2006 “Tackling Managed Service Companies”, the government has now published its first draft of the threatened third-party liability provisions, making third parties liable for the tax debts of an MSC. This again is within a consultation to which responses are required by 30th April.  The consultation is limited only to whether the draft legislation is wide enough to achieve the objective of stopping tax avoidance through scheme providers, and whether third parties, for example agencies and end users, could be held liable on any basis other than that they knew or could reasonably have been expected to know of the arrangement. However it is the stated intention that the new laws in final form will apply to any tax debt incurred from 6th April 2007. Accordingly whilst some may be tempted to consider that there is time after 6th April 2007 to change…

Lawspeed Meets with HMRC

On 17th January Adrian Marlowe and David Vincent of Lawspeed met with six representatives of the Treasury to discuss the proposed new MSC legislation. During a meeting lasting nearly two hours a number of key points emerged, and the following represents our understanding: HMRC does not intend to legislate against genuine umbrella companies that employ their workers and pay fully by way of employment income.  The draft legislation may be altered, excluding umbrellas, to make this clearer. Expenses allowable for agency workers, for example for travel and subsistence, is under consideration. The intention is to nail IR35 and expenses tax avoidance schemes and further steps are underway to identify the constituents of such a scheme so that the net can be widely cast. A dependency upon establishing financial and management “control” as one requirement to qualify as an MSC, as in the current draft, is under review.  Amendments to the…

HMRC announces start of a review of the concession

Note 25th June 2010 – As can be seen from the article below HMRC started a review of the concession in July 2006. In April 2008 it was announced that the concession would be withdrawn after 1 year, and on 1st April 2009 the concession ended. The concession was particularly useful for public sector organisations, banks and charities, none of which could set their VAT payments against VAT charges as they are VAT exempt. Small businesses with low turnover, and start up businesses also may not register for VAT if their turnover is below the registrable limit, and thus coud take advantage, but even businesses that can charge VAT benefitted from the cash flow advantage of hiring agency workers without payment of VAT on the workers charge element. The article below contans a brief explanation of the position in 2006. July ’06 HMRC announces start of a review of the…

Extending paid holiday entitlement

Government announces consultation on the increase of paid holiday entitlement under the Working Time Regulations to include public and bank holidays. The DTI has announced a consultation on extending the current right for all workers to 20 days’ paid leave each year by a further 8 days to reflect bank and public holidays “UK Holidays”). If after the consultation the government decides to proceed with legislation to extend leave entitlement, the result would be that all workers will be entitled to 28 days paid holidays instead of 20 days. Some issues Most employers already absorb UK Holidays as paid, since most employees are not paid on an hours worked basis. However an extension of leave entitlement would particularly affect employment businesses supplying paye temps, who are paid on an hours worked basis only. The net result of any extension would be to push the amount attributable to holiday pay up from…

Cable & Wireless v Muscat Court of Appeal

It is a finance directors role, amongst other things, to find ways of reducing overhead. Costs actually saved without affecting performance is the ideal. Attributing costs to one type of overhead instead of another can also have benefits, allowing budgetary targets to be met. Traditionally one method for larger organisations to reduce and/or reallocate cost has been to reduce headcount amongst employees. Laying off staff removes the entire overhead but loses the resource, and thus can affect performance. Converting staff from being employees to being self employed however has enabled savings to be made without necessarily affecting performance, and historically has provided the added bonus of achieving hiring flexibility. Non employed staff do not need statutory notice to end the contract, and do not have the right to claim unfair dismissal or redundancy (or for that matter other pure employment rights) – and so such staff can be fired at…

Good news on employment status

Less than 4 weeks after the Court of Appeal’s decision on Cable & Wireless v Muscat, that a contract of employment can be implied between an agency worker and an end user, the Government announce that there is no need for further legislation on employment rights for agency workers. The timing of the announcement could be viewed as an acceptance by the Government of the decision in Cable & Wireless, since the consultation on this issue took place almost 4 years ago. Some commentators are wrong by suggesting that recruiters and end users need not worry about the decision in Cable & Wireless because the facts are very specific. Don’t forget this decision upheld the views in the case of Dacas which involved a PAYE temp cleaner, who had not previously been an employee. Although the Government’s decision is good news, since they are not giving employment rights to every…

Landmark Court of Appeal Status Ruling

Those hirers using agency workers / contractors / interims will know that 2 years ago the Court of Appeal (in Dacas -v- Brook Street Bureau) stated that an agency worker could be the employee of the end user to which he/she is supplied. This despite the worker being signed on a contract for services and the written contracts stating that employment was excluded. But questions were left open as to whether the ruling was correct and/or effective. Those questions have now been answered. In its judgment handed down today in the case of Cable and Wireless v Muscat, the Court of Appeal has robustly supported the statements and guidance made in Dacas in 2004, finding that Mr Muscat was an employee of Cable and Wireless under an implied unwritten employment contract. Mr Muscat was a £65,000 p.a. executive operating through a limited company and supplied by the agency Abraxas to…

Employment status – where are we now?

The issue of the employment status of an agency worker has been one on which there has been a flurry of judicial activity over the past two years. The recent trend in court decisions has been to find that there has been an implied contract of employment between the agency worker and the end user client.  Whilst this may at first, appear to be more of a concern for the end users than recruiters, the knock on effect on the recruitment industry may not be insignificant as end user’s turn to their supplying agencies to cover the costs involved. Dacas v Brook Street Bureau Court of Appeal 2004 After 4 years of working as a cleaner through Brook Street for Wandsworth Borough Council Mrs Dacas’ assignment was abruptly ended due to a dispute between her and the council. Even though her written contract was with Brook Street, the Court reached…

When is an agency worker an employee?

The issue of employment status is rapidly becoming a minefield for recruitment agencies and their clients.  Failure to keep up to speed with the constantly changing legal position can prove very costly. In Cable & Wireless v Muscat, for example, the Employment Appeal Tribunal held that an agency worker was an employee of the end user, despite the contract between the agency and worker stating otherwise.  There are further recent relevant cases that affect the position between an end user, agency and its worker. These may pave the way for agency workers to claim full entitlement to employee rights and compensation – including unfair dismissal.  The decision raises some fundamental issues such as, are agency workers entitled to employment rights?  How will end users of agency workers respond?  How can recruiters protect existing business? Central to the concept of agency work is the client’s need for flexibility, in particular the ability…