PRESS RELEASE - Launch of new trade body

Following hard on the heels of the MSC legislation and the imminent introduction of HMRC’s third party transfer of debt liability, a new trade body has been launched, the Association of Employment Management Companies.

In announcing the launch of the Association of Employment Management Companies (AEMC), a spokesperson said “the transfer of debt liability has served as a catalyst to get the employment management companies (otherwise known as umbrella companies) together to discuss a number of issues. We worked together to point out to Treasury and HMRC the inherent flaws in the proposed MSC audit scheme which were clearly a derogation of powers that could only be sanctioned by Parliament. It would have led recruitment agencies into a false sense of security, would have been unconstitutional in law and given no protection against transfer of debt liabilities”.

“Transfer of debt liability does not arise where the recruitment agency is working through an AEMC member company. All contractors are employed by the AEMC member who ensures that the correct tax and NI is paid. In the light of recent adverse publicity and uncertainty within agencies it was clear that the umbrella industry desperately needed to work together to clean up its act. There are no barriers to entry into the umbrella industry and that makes it vulnerable to cowboy operators setting up in business and cutting corners, it is made worse when some of the established names appear to be using questionable practices to maintain market share.”

The objective of the AEMC is to set and maintain a kitemark standard of quality, trust and compliance, to allow Agencies and end Clients to know that their contractors do have full employment rights, to know their contractors are paying the correct tax and NI, and that no liability is going to fall back on them or their contractors. The members of AEMC believe they play a vital role in providing flexible employment solutions to industry and are a major contributor to the UK’s competitiveness. AEMC is determined to represent only those organisations that operate a legally compliant regime.”

All AEMC members will be listed on the Association’s website www.a-emc.com and it is important that you check this before starting a business relationship.

 

Any enquiries or applications for membership should be addressed to enquiries@a-emc.com

 

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.