Recruiters are carrying out detailed checks with umbrella companies and other tax scheme providers to ensure that they are compliant with the new tax legislation relating to managed service companies (MSCs).

Hays, Alexander Mann, Computer People and Capita are reported to be among those recruiters acting to ensure compliance.

Conrad Bezuidenhout, general manager at Consultant Technologies, a company providing umbrella-type services for contractors, said they are receiving questionnaires from “100% of agencies” and completing one for every contract they get in.

“I don’t think an agency will accept a contract if the scheme provider is not compliant,” he said, explaining that failure to do so could make the agency liable if the contractor failed to pay the tax and National Insurance.

Damian Broughton, director of Danbro Accounting, added that they have been receiving four-page questionnaires from about one in six of the agencies they deal with. “The purpose of the questionnaires is to ensure that we are not exposing contractors or ourselves to the new legislation, and that we are in compliance with the MSC legislation,” he said.

However, Tim Cook, managing director of Hays Construction & Property, refused to confirm that his company is sending out questionnaires, saying only “we are in dialogue with MSCs to ensure they are compliant”.

Mark Jones, head of the contract services management centre at Alexander Mann said that although they had designed a questionnaire, they had not yet made a decision whether to use it.

LEGISLATION AFFECTS PAY
Changes to the legislation on  MSCs are affecting the take-home pay of temps and contractors, and could lead to upward pressure on pay rates, according to Tim Cook, managing director of Hays Construction & Property.

Cook told Recruiter that the changes had led to an exodus of contractors operating through MSCs (see Recruiter, 2 May), which allowed contractors to pay themselves dividends, to umbrella companies where tax and National Insurance (NI) is deducted from their wages.

Cook told Recruiter: “The take-home pay of temps has gone down by as much as 10 % and this will put pressure on pay rates.”

Cook said that the main reason for the fall in take-home pay was because temps and contractors now had to pay the full NI rate on their salary. Previously they had been able to reduce their NI and tax liabilities by paying much of their income in dividends.