PRESS RELEASE

With the onset of the MSC legislation it has become of paramount importance to employment businesses supplying contractors to ensure that they are not caught by the debt transfer provisions. There is a specific risk under the MSC legislation that, wherever a worker has been referred by an employment business to a specific provider which the worker then uses, the worker's company could be regarded by HMRC as caught by the MSC legislation. Where the legislation applies, the company must treat all its payments to the worker as employment income and account for PAYE and employer and employee National Insurance to HMRC on each payment. Where all payments are not made on this basis, not only may the worker receive an unexpected tax bill, but liability for unpaid tax sums can be transferred to the referring employment business.

A provider offering a tax advantageous regime, perhaps suggesting that company operations could be undertaken outside IR35, or through offshore arrangements, to worker companies is unlikely to recommend payment of tax in the way required by the legislation, and therefore poses a particular risk of debt transfer. In contrast, an 'umbrella' company that pays its agency workers only by way of employment income is outside the scope of the MSC legislation and therefore offers no risk to an employment business that refers workers to it. The question then is how to identify an organisation that offers no risk to employment businesses, and the formation of the AEMC addresses that issue.

Whilst it is accepted that some contractors will wish to continue using providers that offer services more suited to independent businesses, the legislation is not framed to make any clearly identifiable exceptions, although the legislation does not apply to companies merely receiving accountancy or legal advice. This issue was considered recently by HMRC until it was recognised that any informal arrangement that allows certain types of provider to operate without sanction even though they may fall within the strict definition of the law, may be unlawful. The discussed 'audit scheme' was abandoned for that reason.

Given the way the legislation is drafted it may be that HMRC now realises that it catches more operators, and therefore their customer worker companies, than was originally intended. However only Parliament can change the law and there are many legal precedents supporting the principle that HMRC must follow the law as stated without favour.

Any audit scheme would clearly have raised the hopes of employment businesses, recommending a particular non employment provider, that debts could not be transferred if the provider had passed the audit standard because the employment business had acted 'in good faith'. As things stand, in fact the legal position is that they would have been exposed in any event as HMRC is obliged to enforce wherever the law requires it to do so.

The suggestion that the marketplace demands some kind of provider validation process is fine but the rule that HMRC must enforce would apply just as much to any alternative scheme which seeks to validate a provider as safe to recommend under the MSC legislation, as true validation is simply not possible in the absence of formal legal HMRC approval. No one else can be the arbiter if it possible that the legislation may apply.