Umbrellas face uncertainty over tax liability

As umbrella companies face a period of uncertainty following the new restriction of tax relief on travel and subsistence expenses, last week the FCSA advised its members not to sign any guarantee on tax liability.

This is according to legal and compliance consultancy Lawspeed, specialist advisors to the recruitment sector and supply agencies. With a plethora of tax rules now in place, based upon HMRC’s concept that agencies should be liable where there is non-compliance, Lawspeed believes that the risk factor for agencies has been ramped up.

The FCSA has advised its members not to sign any such guarantee on the basis that it is disproportionate and represents an abuse of the agencies’ position in the relationship.

“It’s now all about risk,” said Theresa Mimnagh, Associate Director of Lawspeed. “Prior to 6 April 2016, working with umbrella companies appeared to be a relatively safe solution for agencies that wanted to allow their contractors to maximise tax benefits without the potential of liability. Only a few precautionary steps needed to have been taken. However, since that date, the entire umbrella model is under threat and service providers are inevitably looking to find different ways to service the industry or otherwise participate.”

However, given that personal guarantees are common in the finance and lending industry and that agencies cannot protect themselves in any other way in the circumstances in which there is uncertainty as to the compliance of models now on offer, Lawspeed advises that a personal guarantee should be considered by cautious agencies.

Mimnagh explained: “Putting it another way: the assurance offered by a guarantee must instil confidence and give the umbrella company the best shot at winning new business.

“Whilst it is possible to understand why HMRC has taken the steps it has, based on massive growth in the sector and HMRC’s belief that there has been non-compliance in many cases as evidenced by the recently reported case of Christianuyi Ltd & Ors v Revenue & Customs, the placing of liability in this way, coupled with the attack on the umbrella expenses model represents a particular threat to agencies that want to offer flexible solutions. There will undoubtedly be fallout in the market place, but our job at Lawspeed is to advise our clients on the risks that arise and recommend solutions. If I was operating an umbrella company I would be looking at all options and considering how I can use my existing resources to operate a profitable business – that may include servicing of hirers directly. Agencies should factor this into their policies.”