Reply to: Contract - must be a director???

[Inside Agent]

received bad advice
well respected tax advisors who couldn't work out, or were ignorant of the fact that there are equally safe small ltdco structures, who are, in no way, and never could be MSCs and therefore caught by the legislation.

There's safe, and then there's bl**dy stupid. It really isn't hard to understand that a couple running a business aren't affected (except by ignorant agents) by the MSC legislation.

I wish I had found this site earlier. You could have saved my company thousands and I would have not had to have hired a PA to correct my spelling

In seriousness with the transfer of debt provision looming over agencies and end client's heads if dodgy offshore umbrella go pop without paying the tax bill agencies should rightly be cautious of who they trade with.

[tim123]

Tim, I seriously think that you too have misunderstood what the IR consider as an MSC. Here's a link on this very site about it all:

.

No, you are misreading my answers

I said that this was the agent's interpretaion and one that could be argued was a wrong interpretation.

I am only telling you what they have concluded, I have never said that I agree with it.

And what you posted is but a small amount of the stuff that HMG issued on the matter. The answer to your question is somewhere in the other 300 pages - you may recall (or probably not) that the original release was written so that it appeared any limited company, sub-contracting the calculation of their company accounts to an accountancy practice, would make that accountant an MSC.

tim

[BamBam]

A contrivance to pay income via dividends by people who were taking no business risk.

Remember, these schemes were not just aimed at "us" (high paid consulatants who need to operate via a limited for genuine reasons), they were starting to be (predominately) used by low paid gurnt staff such a office temps.



Forcing people into a position where they still have the option of "own" limited does not cut the IR's costs

tim

Tim, I seriously think that you too have misunderstood what the IR consider as an MSC. Here's a link on this very site about it all:

http://www.contractoruk.com/managed_service_companies/

And they quote the Treasury's document as follows:

"The Government is taking action to tackle Managed Service Company (MSC) schemes which are used to avoid paying employed levels of tax and NICs. Income received by workers in MSCs in relation to services provided through the MSC will be subject to employed levels of tax and NICs, with the MSC obliged to operate Pay As You Earn (PAYE) and deduct tax and Class 1 NICs on that income - and the rules for tax relief for travel expenses will be the same as for other employed workers. The Government will also address the problem of MSCs escaping payment of tax and NICs due by allowing the recovery of these debts from appropriate third parties.

Now, no where in that can I see how a consultant who is a director of a Limited Company can be considered as an MSC. Out of all the entities that are involved in the contracting chain, the 2 entities that I can see which are closest to being considered an MSC are firstly the Umbrella companies (who often try to find ways to run you as part of a Ltd Co, to save you money and the headache of it all), and *maybe* agencies, seeing as you have to use their billing/timesheet systems.

Here's the interesting (and scary) thing, though. If you have your own Ltd Co and sub-contract other contractors to agencies, you too could be caught up in this - if you pay those people a salary and dividends. In a similar way, Outsource Cos can also fall into this bracket, for similar reasons.

[tim123]

What do you consider that genuine abuse to be? And who is it aimed at?

A contrivance to pay income via dividends by people who were taking no business risk.

Remember, these schemes were not just aimed at "us" (high paid consulatants who need to operate via a limited for genuine reasons), they were starting to be (predominately) used by low paid gurnt staff such a office temps.

I didn't imply that there was a conspiracy, just that they'd go after the bigger fish (and as result catch the little fish in the same net) and hence cut down their costs for investigations/action.

Forcing people into a position where they still have the option of "own" limited does not cut the IR's costs

tim

[BamBam]

Actually, I think he saw a genuine abuse that he wanted to stamp on, because IMHO there *was* a genuine abuse that needed to be stamped on.

No conspiracy theory needed here at all.

tim

What do you consider that genuine abuse to be? And who is it aimed at?

I didn't imply that there was a conspiracy, just that they'd go after the bigger fish (and as result catch the little fish in the same net) and hence cut down their costs for investigations/action.

[BamBam]

Since you have turned up, you have accepted the terms and conditions that were last exchanged between the Agency and your Company.

So what ever you decide to do from here is moot really - you have accepted the contract on their terms and conditions with the clause that you aren't happy with.

FWIW, either version of the clause would be unacceptable to me, however there's not much you can do about it now.

Actually, I flagged this up with them and said that I couldn't sign the contract as was, because it was untrue. They vowed to resolve this, and hence why I started. So, in short, I started with the proviso that this (and another) clause was sorted.

Out of interest, what in the revised clause do you not like? If for nothing else, for future reference.

[tim123]

Basically, Mr Tax Man wants to cut down on having to chase individual contractors

Actually, I think he saw a genuine abuse that he wanted to stamp on, because IMHO there *was* a genuine abuse that needed to be stamped on.

No conspiracy theory needed here at all.

tim

[TheFaQQer]

Guys, I wish this was all resolved before I'd gone onsite, but now I'm onsite, I need to get this resolved ASAP.

I can tell the agent that I'm not going in again until the contract stuff is resolved, but this won't look good to the client. The agency have supplied consultants to this client before, so who are they going to perceive as the problem maker - the guy who's just arrived, or the agent that's been dealing with them before?

Since you have turned up, you have accepted the terms and conditions that were last exchanged between the Agency and your Company.

So what ever you decide to do from here is moot really - you have accepted the contract on their terms and conditions with the clause that you aren't happy with.

FWIW, either version of the clause would be unacceptable to me, however there's not much you can do about it now.

[mailric]

its bolox. you know it is, i know it is, everyone knows it is. you think the top 5 consultancies have it their contract?

agents are not lawyers and have no idea what is in their contract and why it is in there.

my better half is a lawyer and has torn every contract i've had to shreds (ok, so thats only 3 so far but its 3 from 3 already)

if u sign it, most likely wont make a difference. if you sign it and there subsequent problems with payment etc... then you might wish you hadnt signed it.

if you dont want to risk it... do whats mentioned above... cross it out, initial and send it back.

[BamBam]

For the reason that "Inside Agent" gave in the previous post.

They want to be sure that your company is not a "Managed Company" (or whatever it is called) of the type that was banned a couple of years ago.

If they don't take this step (of making sure) they can be held personally liable for your company's tax bill if you don't pay it.

It could be argued that they don't need to go as far as they are in doing this check, but nevertheless, this is why they are doing it.

tim

Tim, as NotAllThere said (who IMHO summed it up pretty well!), the agencies are completely clueless as to what an MSC is in the eyes of the IR. Basically, Mr Tax Man wants to cut down on having to chase individual contractors, and instead go after a single company that represents many of these said contractors - ie either agencies and/or umbrella companies. My argument has always been that if the agency are too stupid to see this, and insist on having clauses in the contract to try and say that the *consultants* are not MSCs, they are simply saying to the IR "hey, I know nothing about what you're trying to clamp down on, so I'm open prey for you to come down on me, maybe taking my service providers down with me".

One of the main reasons I started this thread is to see if anyone would/could give good arguments on the side of the agency, to see if they *do* have good reason to put such clauses in the contracts. I'm not convinced they do.

In an age when the IR will be looking for new ways to raise money for their "investments" in failing banks, I don't see why bonafide companies such as mine should be put at risk simply because agents don't fully understand some fundamental legal aspects. Or is someone going to show me that I'm wrong about this?

[tim123]

Seriously, what you're saying doesn't explain any of the points I wanted to discuss, ie why they need the consultant to be a director with "control" over the company.

For the reason that "Inside Agent" gave in the previous post.

They want to be sure that your company is not a "Managed Company" (or whatever it is called) of the type that was banned a couple of years ago.

If they don't take this step (of making sure) they can be held personally liable for your company's tax bill if you don't pay it.

It could be argued that they don't need to go as far as they are in doing this check, but nevertheless, this is why they are doing it.

tim

[tim123]

How does *that* work then, in a "regular" company? You're saying that someone doing the accounts can't make decisions about the accounts, because they're not a director? Or indeed that any of the directors can make financial decisions, even though that's not their remit (eg they're the Technical Director)? What you say makes no sense.

In a "Normal" company people with the job title "Director" aren't always controlling directors.

We are talking here about controlling directors. Legally, they are jointly and severally liable for the financial decions that the company takes, even if they weren't in the room when the decison was made.

tim

[NotAllThere]

When the Finance Act came in agencies received advice from a number of well respected tax advisors.

Generally the accepted and safe definition of a Personal Service Company was one that is generally a single consultant who excercises financial independence over the running of their company and financial affairs.

received bad advice
well respected tax advisors who couldn't work out, or were ignorant of the fact that there are equally safe small ltdco structures, who are, in no way, and never could be MSCs and therefore caught by the legislation.

There's safe, and then there's bl**dy stupid. It really isn't hard to understand that a couple running a business aren't affected (except by ignorant agents) by the MSC legislation.

[BamBam]

WHS.

Its a ludicrous clause. If they dont want to lose commission on you, they'l bellyache a little but agree to it.

Guys, I wish this was all resolved before I'd gone onsite, but now I'm onsite, I need to get this resolved ASAP.

I can tell the agent that I'm not going in again until the contract stuff is resolved, but this won't look good to the client. The agency have supplied consultants to this client before, so who are they going to perceive as the problem maker - the guy who's just arrived, or the agent that's been dealing with them before?

[BamBam]

But you don't. You are joint shareholders and directors in the company.

You are therefore jointly responsible for the decisions taken. You can't just decide between yourselves that "the wife is responsible for financial decisions".

How does *that* work then, in a "regular" company? You're saying that someone doing the accounts can't make decisions about the accounts, because they're not a director? Or indeed that any of the directors can make financial decisions, even though that's not their remit (eg they're the Technical Director)? What you say makes no sense.

Such an agreement will carry no weight at all if anyone were ever to need to take action against you for any financial complications.

How too does *that* work, then? If someone wanted to take action against us, they're *not* taking against *us*, but the company itself - hence the name "Limited"!!

Seriously, what you're saying doesn't explain any of the points I wanted to discuss, ie why they need the consultant to be a director with "control" over the company. We're not a "one-man-band" masquerading as a Limited company - we're actually a proper company in the sense that there is more than 1 director and we don't solely survive off contracting. For example, we pitch for work directly to companies (ie no agent in the middle) and already have a couple of on-going projects like this, and also one of the company's revenue streams is actually through our own e-commerce site.

Bottom line is 1 shoe doesn't fit all, so I'm amazed at how much hassle it is every time to get a proper contract negotiated/signed.