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, the UKís number one contractorís Chartered Accountant.
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 ëencourages or is actively involvedí with a contractor working with a managed service provider could, under certain circumstances, be held responsible for any unpaid tax payments.
Recognising the unintended but negative effect of the MSC legislation on an agencyís 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. 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 6th January 2008.
ìAt 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 situationî says Roback.
However, a Big Four representative recently told an ATSCO (Association of Technology Staffing Companies) meeting that the likely cost of undertaking an audit could be as high as 100,000, and will only be valid for 1 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.
ìUnless the Government can unequivocally guarantee that dealing with an ëauditedí provider will protect an agency from Debt Transferî says Roback, ìits 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.î
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 merely the Big Four, in practice an agency will only trust a name it can recognise.
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.
ìAlthough 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.î
MSC Audit may cost service providers 100,000
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