The recent demise of umbrella company Albany has left many recruiters concerned about the use of intermediary companies. Recruiters want to see their contractors paid and feel reassured that the service provider will not go into administration. Aside from the fact that the reputation of the recruiters is at stake, HM Revenue & Customs legislation regarding debt transfer has made recruiters cautious.

Managed Service Company legislation was introduced to take effect from April 2007 to prevent the avoidance of tax and national insurance payments by individuals who are in fact employees. This meant that Managed Service Companies treat all payments received by workers providing their services through companies such as this as income that is then subject to tax and national insurance.

Recruiters are now wary of giving advice regarding the choice of service providers in case they are caught by the transfer of debt legislation. This legislation was introduced by HM Revenue & Customs to prevent MSCs going into liquidation and resulting in the payment of tax and national insurance owed to HMRC going unpaid. The debt can in fact be transferred to a third party.

However, any recruiter who has passed on a list of service providers to umbrella workers or contract workers in good faith without actively encouraging a worker to use the services of a particular company should not have a problem. Transfer of debt will only occur if a third party was actively involved in any arrangement.

An umbrella company who makes claims that they are approved by HM Revenue & Customs should be avoided as HMRC does not approve any schemes such as this. A reputable umbrella company will deduct expenses that are permitted by HMRC as well as deducting the correct amount of tax and national insurance from the contractors pay.