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MSCs; Audit could cost providers £100,000

by The Editor at 10:27 16/11/07 (News)
A provisional plan by HRMC to introduce an audit standard for service providers, could land each of them with a £100,000 audit bill and may well fail to meet its objective, according to Barry Roback, Chief Executive of JSA, contractors' Chartered Accountant firm.
The proposed audit standard is designed to address the concerns of agencies who may innocently be caught under the 2007 Managed Service legislation, whereby anyone who ‘encourages or is actively involved’ with a contractor working with a Managed Service Provider could, under certain circumstances, be held responsible for any unpaid tax payments.

Barry Roback"JSA claims that recognising the unintended but negative effect of the MSC legislation on an agency’s Preferred Supplier List (PSL), HMRC is now considering a scheme whereby Service Providers subject themselves to an audit by one of a list of recognised third parties which will include the Big Four accountancy firms - applying a published HMRC Audit Standard.

JSA believes that this scheme is likely to be approved, and available for application by the end of this year, bearing in mind that the Debt Transfer rules will apply to employment businesses from January 6 2008.

Barry Roback said: “At the moment, there are probably more opportunities than ever for unscrupulous service providers to prey on unsuspecting contractors. Surely this is the opposite of what the Government had in mind when it introduced the legislation? At least HMRC is now attempting to redress the situation.”

Guarantee
However, a 'Big Four' representative recently told ameeting of the agency body ATSCo that the likely cost of undertaking an audit could be as high as £100,000, and will only be valid for one year.

Furthermore, although HMRC has stated that its intention is that the Audit Standard would provide legal certainty for Employment Businesses, it has not yet confirmed that such a guarantee will be enshrined in law.

Mr Roback said: “Unless the Government can unequivocally guarantee that dealing with an ‘audited’ provider will protect an agency from Debt Transfer, its value is questionable. Agencies will only reinstate their Preferred/Approved Supplier Lists if they have absolute confidence that they will not fall foul of the transfer of debt provisions. Without a legal status to support the audit standard, agencies are still going to fight shy of maintaining an approved supplier list.”

He also warns that the estimated £100,000 audit bill will only be commercially viable for the largest service providers, if any, which will lead to a severe limitation of choice for contractors. While it is understood that the audit process will be open to organisations other than the Big Four, JSA says that in practice an agency will only trust a name it can recognise.

Mr Roback concludes that while HMRC maintains that it has neither the financial or physical resources to run an audit scheme itself, the fact remains that the new Managed Service Company legislation has exposed some major fault lines which need sorting out.

He said: “Although the proposed audit standard should prove a nice earner for the Big Four, it will only be commercially viable for service providers if it carries a legal warranty. It is a pity that the Revenue has neither the time or resources to take on this task themselves.”

Further information
AgencyEye's sister site, Shout99, has followed the MSC proposals in detail. For further information see the Political News section.

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Susie Hughes
The Editor © AgencyEye 2007

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