A leading UK TAX consultant has revealed this morning that employment agencies, ‘specialising’ in the IT and Telecoms contract market, are miss-leading clients in terms of the clients potential liabilities if they were to engage professional contractors direct.

One TAX expert said, ‘What the agencies are suggesting to their clients is libellous, in fact if they were acting as financial consultants they would be struck of the registrar, or at the very least sued’.

So lets view the facts;

We asked the same TAX consultant what is the UK law today in terms of business-to-business, or incorporation-to-incorporation contracts, where TAX and NI liabilities are concerned. He said, ‘Agencies are confusing UK law with International law, for example. One employment consultant we spoke to recently, who works for Computer Futures told us’, ‘If I were the client I wouldn't be very confident on the direct contractor bit. Business-to-business contracts between the end-client and the professional contractor companies is bad business for the client, particularly where the business is the director and the employee. This may just be seen to be akin to employment, and in my professional opinion, the client just may be liable for employers NI backdated to when contractors started. We at Computer Futures, and other agencies, are making sure the clients are aware of this’.

We suggested to the Computer Futures, ‘If a contractor has a limited company (Schedule E) then there is NO way the client can be liable for NI. Surely this only can occur if the contractor is on Schedule D (Self-Employed)’. The response was not one that we would like to print, but the suggestion was one of surprise.

So to move on, we decided to talk with our leading TAX expert asking if the agent’s stance and advice to their clients was indeed incorrect. The TAX consultant said, ‘This is precisely the sort of rubbish currently being spouted by agents, and the evidence is now beginning to come to light that the clients themselves are becoming increasingly frustrated with employment agencies and their tactics’.

So what about UK law itself? The TAX consultant replied, ‘If the contractor was self-employed I would understand, but if a contractor is incorporated then all liability for NI and employee benefits are the responsibility of the contractor's limited company. Otherwise why do agencies insist on incorporated contractors only? Otherwise the agents would be liable, wouldn’t they’.

We asked, ‘So are you able to quote UK law to back up your stance and remove the fiction that agencies are telling their clients’. The TAX consultant replied, ‘This is in ICTA 1988 S.134 and reinforced in the Finance Act that brought in IR35, which explicitly makes the contractor personally liable for NI and tax. Two incorporated contractors have recently tried to have themselves declared as employees of their client, HP. They failed precisely because of the intermediary, their limited company, even though under IR35 they were found to be employees of their client. I suggest the agencies in question go and do some proper research. More so, I suggest that the agent’s clients themselves take a step in the right direction and review their practises to utilising agents as sole suppliers of professional contractors’.

So lets summarise as follows;

It does not surprise us that lawyers would advise their clients wrongly. It might be risky, but the same goes for accountants as well, most of whom haven't a clue about employment law.

The real reason clients continue to use agents for contractors is;
1) the mistaken belief that it protects them from employment rights
2) the mistaken belief that agents will find them the best contractors for the role

Report by the Independent Media Group