Sir, I read with interest your report 'Revenue plugs CIS loophole' (News, July 6). As a provider of managed composite companies, here is our understanding in relation to the Revenue's decision to withdraw Gabem's CIS 5 certification.
The Revenue is not trying to stop contractors working through managed limited companies, but is ensuring those that do are fully compliant with IR35 and are genuine contractors, not 'disguised employees'.
The is an issue of compliance, not the mechanism through which contractors work. Gabem provides the former. But the issue of compliance applies to all contractors, whatever the mechanism.
The Revenue has recognised there is a minority of businesses that work within the rules and in two instances (Brookson being one) it has reached written agreement on the basis that members have no historic IR35 liabilities and will keep to agreed procedures. As long as contractors are compliant, the Revenue is happy for them to work through limited company service providers.
Compliance is affecting the contracting market in general, but in the construction industry, service providers require CIS certification in order to operate. This gives the Revenue 'sharper teeth' by not renewing certification for noncompliant firms.
The issues Gabem faces will be met by some but not all providers in this market. Compliant providers will continue to receive payment from agencies under CIS certification.
From a contractor's perspective, not tackling compliance may result in a large tax bill.
The concerns felt by both agencies and contractors around the issues facing Gabem highlight an industrywide lack of understanding about compliance in general and limited company service providers.
The issue is not only about compliance. An established code of practice is required to stop many from using 'smoke and mirrors' to win business and charge for hidden extras.
There are other features contractors need to be aware of when working through a limited company model. An example is where contractors are both a director and a shareholder. It is directors of a company who carry the responsibility for a tax bill if the things go wrong.
Martin Hesketh Managing director Brookson Warrington