Providers who influence contractors to incorporate due to the AWR may fall foul of debt transfer rules
Posted Oct 20, 2011
A contractor accountant has warned end users and agencies who influence contractors to work via limited companies in order to avoid the Agency Workers Regulations that they may fall foul of the debt transfer rules.
If HMRC subsequently finds that any personal service company arrangements have been set up in an artificial way, any influencing party may be liable for any unpaid income tax and NICs which would otherwise have been payable had the contractor not incorporated.
This is according to Matthew Brown, MD of giant group, the contractor service provider.
According to giant, HMRC is continuing to clamp down on Managed Service Company operations. In fact, the number of reviews of suspected MSCs increased by 71% in 2010/11 compared to the previous year.
During the course of the last tax year, over 140 formal transfer of debt notices have been issued to companies suspected of non compliance with tax regulations.
It is estimated that the tax loss per limited company is around £10,000 per year, so the potential debt transfer penalties faced by those who are found to have 'influenced' contractors to incorporate artificially is high.
An artificial arrangement would involve a contractor who is not truly in business on his own account working via his own limited company, rather than operating as a PAYE agency employee, or umbrella company employee.
Matthew Brown commented: "It is easy for recruiters to comply with AWR. You simply have to ask the hirer two questions."
"If the temporary worker was employed by you, what would be their salary (overtime and bonus, if any) and days of holiday entitlement? Agencies need to be very careful if they are thinking about advising contractors to use a PSC as a way of avoiding AWR."
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