Compliance for Interims
The API is committed to ensuring that all interim managers are aware of the employment legislation and business regulations that may affect them. There is a wide range of employment law and other legislation that may affect interim managers and organisations that use their services. This guide is designed to help you understand those laws and, crucially, how to abide by them.
Legislation relating to employment business and the taxation of income deriving from these activities is becoming ever more complex, driven both by UK and EU law, and both interim managers and those engaging their services need to be aware of the key laws that can impact on interim assignments.
Broadly, these laws seek to protect individuals, ensure fair competition and regulate business practice. In each case, the most important step is to make sure you know what laws apply to you, and if you are in any doubt, seek professional advice.
We recommend you take time to find out about:
Intermediaries Legislation (IR 35)
Money Laundering Act
Proposed Managed Service Company legislation from HMRC
Professional Code of Conduct
Complaints / Disputes
The Data Protection Act 1998
This page provides an introduction to the Data Protection Act and how it affects interim managers and the users of interim services. The Data Protection Act came into force in the UK on 1st March 2000, following an EU directive designed to protect the privacy of individuals. Wide obligations have been placed on anyone who collects 'personal data', and wide protection is given to individuals on whom the data is collected.
The Act applies to the 'processing' of 'personal data', and both of these terms have been given extremely broad definitions so as to maximise the protection of the individual. This also means that almost any business in the UK holding information on its employees or clients, for example, will need to comply with the Act which is complex and imposes many obligations on processors of personal data.
There are both criminal and civil sanctions for breach of the legislation, so businesses must be careful to ensure compliance. Essentially, the Data Protection Act means that interim managers can request to see any personal information that an organisation (e.g. an interim management provider or an organisation they have conducted an assignment for) holds about them, and that those holding that data must follow certain rules in the way they store and use it.
Most organisations are already aware of the Data Protection Act and their obligations around the storage and use of personal data. When it comes to working with interims, there may be particular issues around the use and sharing of employment references, access to data when an interim is working within the organisation, and what information they continue to hold after the interim manager has completed the assignment.
The Information Commissioner's Office website offers guidance on the implications of the Act and any changes necessary to ensure compliance.
The contents of this article are intended for general information purposes only and shall not be deemed to be or constitute legal advice. The summaries represent our understanding of the law as at October 1st 2008 and it is subject to change at any time. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.
Intermediaries Legislation (IR 35)
In April 2000, legislation was introduced to combat potential tax avoidance by individuals who provided their services through an intermediary, for example, a personal services company. Using this device, individuals had been able to avoid paying income tax and National Insurance contributions and would instead pay themselves in dividends
.This legislation, commonly known as IR35, has affected a lot of individuals who work on a contract basis through a single company – including interim managers.
Where IR35 applies, any sums received by the intermediary are treated as payments from the intermediary to the individual workers – and so attract PAYE and NICS. This is because the individual workers are treated as 'employees' for tax purposes.
In terms of the employment status of the worker, whilst HMRC may conclude an IR35 situation has arisen, it does not automatically follow that the individual worker is an employee for other statutory purposes. However, the fact that an IR35 situation has arisen may indicate that an employment tribunal would come to the same conclusion.
What does this mean for interim managers?
Interim managers should be aware that IR35 can apply to them if they are contracted largely or exclusively through a single provider and should seek independent tax advice.
What does this mean for users of interim services?
Essentially, the tax burden of such an arrangement will rest with the intermediary as opposed to their client, so users of interim services in general do not need to worry about IR35 unless they are hiring staff direct.
Where can I find out more?
More information about IR35 is provided by HM Revenue and Customs.
BusinessLink provides guidance on setting up a limited company.
The contents of this article are intended for general information purposes only and shall not be deemed to be or constitute legal advice. The summaries represent our understanding of the law as at October 1st 2008 and it is subject to change at any time. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.
^ topMoney Laundering Regulations 2007
Having decided in April 2008 that interim managers would no longer be required to register under the MLR legislation, HM Revenue and Customs has been forced by the Treasury to bring some interims within the scope of the rules.
New deadlines for registering as a TCSP have been set. If you were in this type of business before 15 December 2007, you must apply to register before 30th September 2008. If you are setting up as a new TCSP you will need to apply to register before carrying on that business. There are two groups of interims who may potentially be involved.
1) The first group affects any interim acting at director level (whether formally appointed or acting as a shadow director) or as company secretary who will have to register as a Trust and Company Service Provider (TCSP) but only if working within the high risk
What is meant by director?
'Director' is defined in the Companies Act 2006. If you are formally appointed a director, your name should be contained in the company's register available for inspection at the registered office and registered at Companies House.
If you are not formally appointed but are called a director, you would not be a director within the Companies Act definition, but you may fall within the scope of the regulations as a shadow director. A shadow director is a person who is not a named director but who does direct or control the business.
What is a high risk sector?
- A firm carrying out frequent cash transactions of €15,000 or more
- A company operating within the UK but incorporated outside the UK in a non-equivalent jurisdiction (see appendix 1)
- A company with a holding interest in their capital held in the form of unregistered bearer shares
The MLR Policy Unit has been asked how an interim manager is expected to know these matters about new clients, and they have replied 'ask the client' (it may seem to some people that if a client is involved in money laundering he/she may not tell the truth when questioned).
2) The second group is far more wide ranging with implications for any interim coming under the heading of Accountancy Service Provider (ASPs). As shown below, anyone providing accountancy services at any level in the private sector regardless of whether qualified or not, will fall under the regulations. The public sector is excluded from the regulations.
What is an Accountancy Service Provider?
Accountancy Service Providers (ASPs) is the term used by HMRC for auditors, external accountants and tax advisers
- An auditor is any person who is a statutory auditor within the meaning of Part 42 of the Companies Act 2006, when carrying out statutory audit work.
- An external accountant is any firm or sole practitioner who by way of business provides accountancy services to other persons.
- A tax adviser is any firm or sole practitioner who by way of business provides advice about the tax affairs of another person.
What are Accountancy Services?
Accountancy services include the recording, review, analysis, calculation or reporting of financial information and covers professional book-keeping services, preparing or signing accounts or certificates of financial information concerning a person's or organisation's financial affairs, and advising on tax.
What is tax advice?
Advice is widely interpreted and includes tax compliance services such as assisting in the completion and submission of tax or duty returns. Businesses assisting in the completion and submission of tax returns in relation to any tax will fall within the scope of the Regulations. Businesses providing advice relating to the liability of a particular commodity to a tax or duty or the amount of tax or duty due will also fall within the scope.
What is the difference between tax advice and tax information
When you give a client information about tax and it is the same for everyone – so their particular situation is not looked at, this is tax information. For example: the rate of customs duty is x% or the rate of inheritance tax is y%,
When you give tax advice you will have studied a client's particular circumstances, and assessed and recommended a particular course of action or product that is suitable for them. For example: If you do this, your tax or duty liability will be X. If you do that, your tax liability will be Y.
What types of businesses will be covered?
Businesses covered include;
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And you will be required to register unless for the purposes of the MLRs 2007, you are already supervised by a professional body listed in Appendix 2.
The full guidelines are available on the HMRC website including how to register at:
http://www.hmrc.gov.uk/mlr/mlr9.pdf
When asked how HMRC intended to police this system, the reply was "…HMRC will actively enforce the MLRs 2007 by means of a risk based intelligence led strategy, issuing proportionate penalties to those who do not comply to encourage full compliance with the regulations. This strategy will use various means to police the perimeter and identify unregistered businesses, including carrying out searches of the internet and other external media"
Appendix 1
What is an equivalent jurisdiction?
This is a country with anti money laundering/countering terrorist finance regimes of similar quality to the EU including the following:
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The list also includes the French overseas territories (Mayotte, New Caledonia, French Polynesia, Saint Pierre and Miquelon and Wallis and Futuna) and the Dutch overseas territories (Netherlands Antilles and Aruba). Those overseas territories are not member of the EU/EEA but are part of the membership of France and the Kingdom of the Netherlands of the FATF. The UK Crown Dependencies (Jersey, Guernsey, Isle of Man) may also be considered as equivalent by Member States. Gibraltar is also directly subject to the requirements of the Directive, which it has implemented. It is therefore considered to be equivalent for these purposes
The following countries have been identified by HM Treasury to be high risk:
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Appendix 2
List of Supervisory Authorities including Professional Bodies named in the Money Laundering Regulations 2007
- The Financial Services Authority (FSA);
- The Office of Fair Trading (OFT);
- The Commissioners of Her Majesty's Revenue & Customs (HMRC);
- The Gambling Commission of Great Britain;
- The Department of Enterprise, Trade and Investment in Northern Ireland (DETI); and
- The Department for Business, Enterprise and Regulatory Reform (BERR).
The Professional Bodies are:
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Proposed Managed Service Company legislation from HMRC
It has become increasingly common for workers' services to be provided to end clients via individual Management Service Companies (MSCs). Some MSCs are set up by employment agencies in certain industry sectors, whilst others are provided by businesses offering generous tax savings to workers.
The MSC structure has often been used to avoid paying PAYE and national insurance contributions on an employee basis. HMRC rules already existed covering the collection of tax in this situation, but concern that the rules were not being complied with, plus the growth of MSCs, has led to a crackdown by the Government.
The 2007 Budget introduced legislation under which all payments received by a worker in a MSC will now be subject to PAYE and Class 1 national insurance contributions. Where HMRC is unable to recover such sums from the MSC, it will also be able to transfer the debt to certain third parties, including an MSC Provider which is "involved" with the company. The new legislation already defines the concepts of "MSC" and "MSC Provider" and lists situations in which an MSC Provider would be regarded as being involved with the MSC.
On 10 July 2007, HMRC published further guidance to clarify aspects of the legislation seen as ambiguous.
The legislation will only apply where there is an "MSC Provider" which is "involved" with a client company.
To be an "MSC Provider", a person must be "carrying on a business of promoting or facilitating the use of companies to provide the services of individuals". The guidance makes it clear that, for example, a firm of accountants which is merely carrying on business as accountants will not fall within this definition, even if many of its clients are individuals operating through service companies. But if a discernible part of the firm's business is to specifically market and/or provide corporate solutions and services to such individuals, that will make the firm a MSC Provider. Similarly, any business which specifically markets corporate solutions and services to individuals providing their services to end users is likely to be a MSC Provider.
The guidance also gives further detail on the operation of the transfer of debt provisions.
What does this mean for interim managers?
Similarly to IR35, interim managers should be aware that the proposed legislation will apply to them if they are contracted largely or exclusively through an MSC Provider and should seek independent tax advice.
What does this mean for interim services?
Essentially, the tax burden of such an arrangement will rest with the intermediary as opposed to their client, so hirers in general do not need to worry about this legislation.
Where can I find out more?
Read the new guidance from HMRC. The API believes this may be of use to anyone operating through a service company, service providers and anyone doing business with such companies.
The contents of this article are intended for general information purposes only and shall not be deemed to be or constitute legal advice. The summaries represent our understanding of the law as at October 1st 2008 and it is subject to change at any time. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.
Rules of Membership
Help shape the futureMembership of the Association of Professional Interims entitles each full member in good standing to stand for and to exercise one vote in elections of members to committees that are formed by the Board of Directors from their second year of membership. Currently this includes the Membership Advisory Committee and the Board of Directors itself.
In addition to adherence to the code of conduct, members of the Association of Professional Interims are required to familiarise themselves with and abide by the rules of membership.
Click here to view our complete rules of membership
The API is the professional membership body representing experienced and new career Interim Managers.
