Finance Bill

I thank the hon. Member for Chipping Barnet (Mrs. Villiers) for going through the amendments in considerable detail. I know that it is late and we have been through this debate in Committee, but it is important because of the potential scale of the impact of the measure. I share the concerns voiced by many people, including the hon. Member for Wolverhampton, South-West (Rob Marris), that some companies, particularly legitimate recruitment and accounting services companies, as well as other back office firms, may be defined as managed service companies when they are not. I shall go through the definition of an MSC, but first I shall talk about the amendments. Amendment No. 8 would amend the description of an MSC by tightening the criterion in proposed new section 61B(1)(d) of the Income Tax (Earnings and Pensions) Act 2003, changing the wording from"““a person who carries on a business of promoting or facilitating”” " to a person"““whose sole or main business…is the provision or facilitation of””" MSC services. That is a useful safeguard to avoid the legitimate back office-type of operation being deemed to be an MSC merely by association. It would also offer some comfort to legitimate recruitment firms, which may be deemed to be MSCs by association with genuine MSCs, because they present as a candidate for a legitimate contract job someone who may not even know their own employment status but who may have been used by an MSC—a real one—that was no more than a gangmaster operation. Amendment No. 9 would leave out ““involved with the company”” and tighten the provisions by including the words"““regularly involved…with all or most aspects of running the company on an ongoing basis””." That change offers real protection to companies that place people from an MSC who are presented as bona fide contract workers, but who, as I have said, may not even know their own employment status. That is an extremely important protection. Amendment No. 11 would leave out ““influences or”” from proposed new section 61B(2)(b), and would require control to be the criterion that determines whether an MSC provider is involved with the company. Amendment No. 13 would specify in proposed new clause 61B(2)(c) that the company must be required to exert"““a substantial degree of influence over the provision of…services””." Amendments Nos. 11 and 13 are necessary to protect third-party companies that are not MSCs from being defined as such; that is particularly important for recruitment firms or accounting companies that facilitate contract employment. By that I mean a recruitment firm that offers any other services—even advice on the nature of payment, on how to invoice or on which contract to take—or an accounting services company with a recruitment arm that assists in the final negotiation of a contract once the contract is put forward by a recruitment firm. It is easy to see that a third-party firm could be defined as an MSC without that protection. The description of an MSC in proposed new section 61B(1)(a), (b), (c) and (d) is clear. Paragraph (a) says:"““its business consists wholly or mainly of providing (directly or indirectly) the services of an individual to other persons””." A recruitment firm would come under that, and an accounting services company might do so if it had any input into the negotiation of a contract. Paragraph (b) says:"““payments are made (directly or indirectly) to the individual…of an amount equal to the greater part or all of the consideration for the provision of the services””." That concerns payment. Paragraph (c) says that a company is an MSC if the way in which the payments are made would result in the individual receiving more than they would if they were a normally employed member of staff, but that is the reason why many people become self-employed contractors; they take a risk and go it themselves, but there are tax advantages, and the income received may be slightly greater. Paragraph (d) mentions"““a person who carries on a business of promoting or facilitating the use of companies to provide the services of individuals””." That is the whole purpose of a recruitment firm. The paragraph would possibly catch an accounting services company with a recruitment arm, too. Of course there are some protections, but I do not believe that they are sufficient. That is why I will support the amendments tonight. A protection is offered in proposed new section 61B(4), which says that the only time when a person does not fall within subsection (1)(d)—that is the description of an MSC—is when they only place individuals with persons who wish to obtain their services. As a recruitment firm may well provide assistance with visas for an overseas contract, or specialist training for an offshore contract, or accommodation for a contract in a strange place, they are not only placing individuals; they are doing other things, too, so the protection in new section 61B(4) does not necessarily apply, as subsection (5) allows an opt-out. Subsection (5)(a) excludes the protection in subsection (4) if the person or associate does anything in subsection (2)(c)—that is, anything that"““influences or controls the way in which payments to the individual…are made””." If a recruitment firm or an accounting services company suggests that the individual contractor invoices weekly, fortnightly, monthly, or three-monthly, according to what suits the contractor, that influences the way in which payments to the individual are made, and therefore the protection in proposed new section 61B(4) does not apply. Reference has been made to the safe harbour in subsection (3), which says:"““A person does not fall within subsection (1)(d) merely by virtue of providing legal or accountancy services in a professional capacity.””" At face value that sounds fine, but if the firm, particularly in an accounting services company context, has a recruitment or personnel arm that offers advice on visas, training or accommodation, or that assists in any way with the final negotiation of a contract, that safe harbour would not apply. As the hon. Member for Chipping Barnet (Mrs. Villiers) said, the Minister gave the Committee certain assurances, and it will be useful to hear what he has to say today. The volume and detail of representations, however, in the real world outside the Chamber are such that he may wish to toughen up what he is going to say or, indeed, tell us that he is prepared to reconsider the Bill’s provisions so that we do not have to rely on guidelines and regulations in future.