Reply to: Agency stipulating sole director ownership ltd

[FK1]

Guessing this is the rationale.

Managed Service Companies - MSC Legislation, Rules and Guides

This form of company structure placed contractors into groups of shareholders in a corporation owned and run by the service provider, providing contractors with the tax benefits of working through a limited company without the overall responsibility.

But if they all are directors? How then it could be "without the overall responsibility".

https://www.gov.uk/hmrc-internal-man...manual/esm3510
Managed Service Companies (MSC): Meaning of a MSC
For a company to be a MSC it must fulfil all four conditions of Section 61B (1), Chapter 9, Part 2 ITEPA.

Following that definitions I think 1 director company is much more close to a MSC definitions than 2 directors-shareholders company.

[Old Greg]

Guessing this is the rationale.

Managed Service Companies - MSC Legislation, Rules and Guides

[Hobosapien]

Hells bells. At some point true contractors are going to avoid agencies altogether and if no direct clients available go and do something else or someplace else where all this interfering 'coz we're all disguised employees really' doesn't apply.

[psychocandy]

I had to deal with something like this with Opus and it turned out that they were wrong, mind you I had to put up a fair bit of resistance to get it dealt with but at least it wasn't impossible. Ask them what legislation they're basing it on? They've probably misinterpreted something no doubt.

"our own limited contractors" - hate it when agencies say that.

Bit worrying that agencies are trying to get involved in tax affairs mind.

Thing is if your company is setup with two directors, then I've always been told that fiddling around with it is not a good idea and can be a flag.

If you get a gig, not sure if it'd be wise saying ok, I'll take the mrs off, and then put them back on again afterwards. If you say no I can't do that - wonder what would happen?

I worked through Opus a few years ago and never had this. Assume its a new idea in their head.

[The Spartan]

We have encountered the same issue. Below is the reasoning provided from the agent (company name removed). Has anyone else dealt this issue recently? If yes, how?

‘XXXX have strict compliance policies and require all contractors operating through their own limited company to comply with applicable law. XXXX’ compliance department works alongside XXXX’ lawyers and tax advisors to set and enforce minimum standards which we expect all our own limited contractors to meet.

One of these minimum standards is that each own limited company contractor is the sole director and shareholder of their own limited company this is because multiple directors or shareholders may be an indicator that a contractor is operating a tax avoidance scheme. The correct amount of tax depends on whether the individual genuinely controls the limited company they offer their services through, if the individual is not the sole director or shareholder of the limited company then this suggests that they have split control over the company and should be paying a higher rate of tax (equivalent to that of an employee).

Tax debt transfer provisions under the Income Tax (Earnings and Pensions) Act (as amended) means that the tax authorities may try to recover the tax the limited company has failed to pay from XXXX in certain circumstances. This is not a risk that XXXX can afford to take which is why we have a sole shareholder and director requirement. ‘

I had to deal with something like this with Opus and it turned out that they were wrong, mind you I had to put up a fair bit of resistance to get it dealt with but at least it wasn't impossible. Ask them what legislation they're basing it on? They've probably misinterpreted something no doubt.

[Colton]

What to do?

We have encountered the same issue. Below is the reasoning provided from the agent (company name removed). Has anyone else dealt this issue recently? If yes, how?

‘XXXX have strict compliance policies and require all contractors operating through their own limited company to comply with applicable law. XXXX’ compliance department works alongside XXXX’ lawyers and tax advisors to set and enforce minimum standards which we expect all our own limited contractors to meet.

One of these minimum standards is that each own limited company contractor is the sole director and shareholder of their own limited company this is because multiple directors or shareholders may be an indicator that a contractor is operating a tax avoidance scheme. The correct amount of tax depends on whether the individual genuinely controls the limited company they offer their services through, if the individual is not the sole director or shareholder of the limited company then this suggests that they have split control over the company and should be paying a higher rate of tax (equivalent to that of an employee).

Tax debt transfer provisions under the Income Tax (Earnings and Pensions) Act (as amended) means that the tax authorities may try to recover the tax the limited company has failed to pay from XXXX in certain circumstances. This is not a risk that XXXX can afford to take which is why we have a sole shareholder and director requirement. ‘

[Taita]

Right, Im back in the saddle again, after a brief telephone interview with repeat previous client, they want me back and have made an acceptable offer.

Been completing the onerous agency paperwork and sent back promptly. Today got asked for company details and the agent has said if working via limited, you must be sole director and all shares in this director's name.

My ltd's are always set up with 2 directors with 50 / 50 split and Im not changing the set up for anyone.

Anyone else come across this? I've never had an agency demand sole directorship for an ltd before.

This is certainly a box ticking exercise but it seems that the box designers have little understanding of the current contract market. The intermediaries regulations come to mind because that is the latest thing to trigger panic in agencies.

At a guess, the agency is trying to ensure that they are paying the Ltd for the sole 'earned' benefit of the named contractor. I have some vague idea that 'partnerships' and 'co-ops' within a single Ltd might cause the HMRC to probe further, dragging agencies in as 'intermediaries'.

Where are our qualified Accountancy posters when we need them?

[Andy Hallett]

I'd agree that there is no clearly defined view from the HMRC of what a PSC is, and this makes it confusing.

I think the interpretations that agencies take from that are that it is not an MSC and exists as a mechanism for personal service, using the natural definition of the word personal:

personal

adjective

1. belonging to or affecting a particular person rather than anyone else.

2. of or concerning one's private life, relationships, and emotions rather than one's career or public life.

[BHicks]

What agency is this? or if you don't want to name names, is it big/well known or small?

I agree, lots of contractors have multiple shareholders. They're going to have a very reduced pool of people they can work with if they insist on one shareholder.

I can't speak for the OP but I recently had the same drivel trotted out by Aston Carter/Teksystems/Allegis before taking on a new gig.

As it happened, my company structure was "compliant" from their perspective, but I'd never heard that one before and it struck me as v. odd.

[SunnyInHades]

Looks like agencies are just covering their backs. I foresee after next week's contractor hittin' budget (to be law 2016)..

1) Umbrella - no travel or other tax deductible expenses
2) PSC - no (reduced?) travel or other tax deductible expenses
3) Non PSC - full expenses, as current
4) Unpaid tax - PSC liable but agency liable if contractor working through a non PSC which can't pay

'PSC' meaningless in law the UK (at the moment) however, but something similar to the USA def may be introduced...

From Wikipedia..
1. Its principal activity during the “testing period” is performing personal services
2. Its employee-owners substantially perform the services in (1).
3. Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period

Looks like it's time to diversify from "Contractor" to "Contractor and Recruitment Services" to become an indisputable non PSC .. frequently hire temps to copy a Job posting from Jobserve, change the wording and repost (7 days for £120)... but damn, then I'll have to vet contractors applying .. will they be PSCs, if not I'll be liable for their unpaid tax ..thinking like a recruitment agency MD now, dangerous.

[TykeMerc]

So summing up......

Agents, who have absolutely no idea of how some new legislation or rules should be applied or to who they're applicable, are asking for damn silly stuff from Contractors?

[eek]

As eek corrected me yes its £50K. If you stay below the 40% then its less than £50K

Yes its per parent. Both could earn £49999.99 and be OK. Or one could earn £50000.01 and the other £1 and not be eligible.

It's actually £60k as while it cuts in at £50k its tapered relief up to £60k...

[psychocandy]

So just to clarify on the Child Benefit, the dividends are included as income for calculations ? And thus if nominal salary of £10k and the maximum dividends paid @10% then you will not lose benefit.

And as this limit is per parent rather than household, each shareholder (ie husband and wife) can draw the same divis.

As eek corrected me yes its £50K. If you stay below the 40% then its less than £50K

Yes its per parent. Both could earn £49999.99 and be OK. Or one could earn £50000.01 and the other £1 and not be eligible.

[RoastedSlopes]

Once again but not quite. You have to hit £50k before you start losing child benefit. Which probably means £37k in dividends assuming £10k salary and the 10% tax credit

So just to clarify on the Child Benefit, the dividends are included as income for calculations ? And thus if nominal salary of £10k and the maximum dividends paid @10% then you will not lose benefit.

And as this limit is per parent rather than household, each shareholder (ie husband and wife) can draw the same divis.

[eek]

Agency stipulating sole director ownership ltd

True enough about Directors. Of course, also if one of you exceeds the 40% then no child benefit - even more of a loss potentially.

Yes and agreed that its best not to define yourself as such.

Once again but not quite. You have to hit £50k before you start losing child benefit. Which probably means £37k in dividends assuming £10k salary and the 10% tax credit