The Gabem Umbrella Companies Blog:
Home of Umbrella Company Gossip Online

Hi everyone, a bit of an early post for you today, there will be another tomorrow, but as quite a lot has gone on the site I thought I should keep you all updated.

Susan has updated her legal bits, this month she talks about why we reserve your holiday pay. It's quite a long one but I think it's her most informative to date, so go take a look here.

I've also added the letter we've sent out to the agencies in response to the Pre-budget report, I'll follow that up with the main response tomorrow for you all to see.

In the meantime here is the big post about the Pre-budget report I mentioned in the title. It's actually last Wednesday's post, which was delayed while I got my facts straight. Here goes:

It's been a good week so far; not only are offshore tax havens finally getting some much deserved attention in the form of Michael Foot (former managing director of the financial services authority), but yesterday HMRC published a document online asking "How sure are you that your company is not a Managed Service Company (MSC)?".

The document details HMRC's changing stance on what they regard as a Managed Service Company and what they plan to do about it. I'm sure there is going to be a flurry of companies re-assuring their operatives that they are most definitely not an MSC and expecting people to take their word for it. I on the other hand encourage you to take a look at the document itself, and draw your own conclusions.

In our opinion these are the key points:

"HMRC's position is that being an officer/partner in a service company does not preclude that person from being an MSC provider.

HMRC considers that companies and partnerships which otherwise fall within the Managed Service Company legislation (that is, fulfil the criteria of Chapter 9 ITEPA), but claim not to be MSCs because the provider is an officer/partner of the intermediary, are MSCs.

HMRC will now look for suitable cases to investigate and, where appropriate, challenge and litigate."

This means that people using intermediary companys (including umbrella companies) will have to be particularly careful about how the company they are working through is structured. Since the 10th of October anyone paid through the Gabem Umbrella Company system has been employed directly by Gabem Management Limited, there are no smaller companies any more (although I will continue to talk in those terms simply because it keeps Google interested), this is what the TUPE letters and Susan's Legal bits were about at that time.

To continue:

"Providers of such companies, their associates and individuals providing their services through such companies will be those most at risk from the transfer of debt provisions.

Those providing their services through companies based outside the UK should not assume that this fact alone exempts their company from the legislation and them from the consequences of non-compliance. If the provider and their associates are based outside of the UK tax jurisdiction, then the persons most at risk are individual workers based in the UK."

Another blow to offshore companies, and more importantly those that use them. HMRC may not be able to go after the company in question but in the cases where they can't the full weight of the transfer of debt will be carried by the people using the offshore company. Transfer of debt being the tricky beast that it is could mean that people will likely end up paying for more than the tax and NI than they would have saved.

Last but not least there is:

"Depending on the contractual relationship between the parties and the true nature of the services provided by the intermediary, the intermediary may not be a contractor within the meaning of the CIS legislation, rather they may simply be a nominee of the worker. Where the intermediary is a nominee, both the intermediary and the worker must have gross payment status in order for payments to be made gross."

This applies only to people working within the CIS system, and operating through a self employed payment company, it's pretty simple to verify, all you need do is check your contract to see how you are related to the payment company in question. If you were to look at your contract with us, you'd see that rather than being a nominee you're a sub contractor to Gabem and we are the sub contractor to the end client. That's why at the beginning of every assignment we check with you to see if you are legitimately self employed and ensuring you are compliant and safe.

Thanks for sticking with that. I hope it's shed a little light on what HMRC were getting at, and that it wasn't too dry.

Hugo
09/12/2008