A staffing company and its director may be facing a possible £10m transfer of debt claim from HMRC under the Managed Service Company (MSC) legislation. As we clarified with the company’s legal team at Osborne Clarke, the key word here is ‘possible’ and it may simply turn out to be a shake-down by HMRC, so the full details may never emerge.
But the interesting point about such cases is that they may start with something as simple as a staffing company providing a list of possible accountancy suppliers out of a genuine desire to support its contractors.
So what does this tell us about new legislation, especially in the light of the forthcoming Bribery Act and Agency Workers Regulations (AWR)? It tells us that nowadays new legislation comes as a package with a host of unintended consequences that can negatively affect individuals, organisations and UK PLC.
Staffing companies and recruitment agencies generally want to focus on the recruitment process and ‘putting contractor bums on seats’. It’s a no-brainer for agencies to prefer their contractor clients to use good quality suppliers because, indirectly, the agency benefits by dealing with well-run contractor limited companies or umbrella solutions providers.
When the MSC legislation first came into force, many agencies simply stopped recommending accountancy suppliers and stopped using preferred supplier lists of accountants. Perhaps the case of the as yet unknown staffing company and director facing a possible debt transfer claim from HMRC demonstrates agencies were right to stop recommending contractor accountants?
Clearly the law of unintended consequences may have a bearing because, although it is difficult to speculate without the facts, it does seem slightly absurd that a business could be facing a £10m bill for making a supplier recommendation years in the past.
And it could remind agencies that there is a line they should not step over. Actively ‘promoting and facilitating’ MSCs clearly takes them over that line. But can simply saying to contractors ‘here’s a list, take your pick’ do the same? Will this latest case, if it indeed becomes a live case, reinforce what agencies can and cannot do?
The MSC legislation has undoubtedly resulted in the agency element of the contracting supply chain missing an opportunity to offer its knowledge and experience on behalf of contractor clients by recommending good suppliers. It has also introduced some expensive and self-defeating measures to the contracting sector and this is only likely to worsen once the Bribery Act and AWR come into force.
New legislation has consequences that have seriously slowed down the recruitment process and, even more worrying given how we now compete on a global stage, is also slowing down UK PLC.