Compliance for Interims

The IMA 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:

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.

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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.

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Money 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 sector.

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;

• Accountants
• Auditors
• Tax Advisers
• Book-keepers
• Payroll Agents
• Tax consultants
• Customs Practitioners
• Interim managers undertaking any of the activities of the businesses listed above

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:

• Argentina
• Australia
• Brazil
• Canada
• Hong Kong
• Japan
• Mexico
• New Zealand
• The Russian Federation
• Singapore
• Switzerland
• South Africa
• The United States

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:

• Uzbekistan
• Iran
• Pakistan
• Turkmenistan
• São Tomé and Príncipe
• the northern part of Cyprus.

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:

• Association of Chartered Certified Accountants
• General Council of the Bar
• General Council of the Bar of Northern Ireland
• Council for Licensed Conveyors
• Faculty of Advocates
• Institute of Chartered Accountants in England and Wales
• Institute of Chartered Accountants in Ireland
• Institute of Chartered Accountants of Scotland
• Law Society
• Law Society of Scotland
• Law Society of Northern Ireland
• Association of Accounting Technicians
• Association of International Accountants
• Association of Taxation Technicians
• Chartered Institute of Management Accountants
• Chartered Institute of Public Finance and Accountancy
• Chartered Institute of Taxation
• Faculty Office of the Archbishop of Canterbury
• Insolvency Practitioners Association
• The International Association of Book Keepers
• Institute of Financial Accountants
• Institute of Certified Book Keepers

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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 IMA 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.

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Professional Code of Conduct

The Professional Code of Conduct for Individual Interim Managers of the Interim Management Association (IMA) seeks to uphold the highest reputation of its members for performance, client service, and personal integrity by defining a high standard of professional practice and a framework for operating, detailing standards, and conduct.

The IMA's marketing and promotional programmes and membership schemes increase understanding and enhance the perception of interim management, helping to open up wider opportunities in both the private and public sectors. The IMA fosters close working links with major management and employer organisations to promote the benefits of IMA members and the use of Interim Management. In addition, the IMA facilitates debate, sponsors research, and contributes analysis of Interim Management to national newspapers, professional and trade publications

The principal aim of the IMA is the development of interim management as a powerful and leading management resource by the collective action of its members and by promoting their common interests based on the highest standard of professional service. Membership of the IMA assures the marketplace of the high quality of service and professional standards of an Interim practitioner or an Interim Management provider. The Association recognises that there is a need to establish and maintain standards of best practice in addition to Government regulatory regimes. The Interim Management association seeks to promote such standards on behalf of the interim management sector.

The provision of Interim Management resource is a professional endeavour. A profession is characterised by the objectivity, integrity and thoroughness of its practitioners. Members will maintain the highest standards of professional work and behaviour so that their actions reflect favourably on the Association, its members, their clients and the profession of Interim Managers. In this endeavour, members will:

• Establish a clear understanding of the clients organisation and requirements and to provide objective professional advice
• Provide a written statement or contract, setting out the description, scope and character of the services to be provided by the interim manager
• Regard as totally confidential all information concerning the business affairs of their clients
• At all times to represent the best interests of their clients
• Behave with courtesy and respect for the culture, people, and working practices of their clients

Members will conduct all their promotion, public relations and new business activities in a manner that involves no representatives, express or implied, that are false, deceptive or otherwise misleading. Neither the Association nor any member will engage in any unlawful restraint of trade or unfair method of competition. Members shall state their terms of business to clients without ambiguity. Where applicable, members shall make themselves fully aware of the provisions of any relevant legislation concerning their tenure. Such legislation must be complied with both in spirit and to the letter of the law. Breach of the law shall be deemed to be a breach of this code.

Members shall ensure that they comply fully with UK and European law relating to Tax and National Insurance.

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Complaints / Disputes

Any client, interim manager or Association member may make a complaint about any member's failure to abide by this code or failure to adhere to normal standards of professional conduct.

Complaints should be made in writing to the Chairman of the Standards and Disciplinary Committee of the Membership scheme (email: Bill@ima-institute.com).

If, with the help of legal advice, the complaint cannot be satisfactorily resolved by the Chairman, it will be referred to the IMA Executive and then to the Recruitment and Employment Confederation to be dealt with under the Complaints and Disciplinary Procedure or referred to arbitration as appropriate.

Appeal Board / Process:

In the event of an individual wishing to join the IMA Institute, but who does not meet the entry criteria, said individual may appeal to any one of The Chairman or Vice Chairman of the IMA or the Chairman of the IMA Institute Steering team.

The 'Appeal Board' member may choose to consult with other members of the Board at their discretion, but will definitely do so if the individual is known to them personally.

The Appeal Board member to whom the appeal has been referred will notify the IMA Institute, if the appeal is upheld, to facilitate membership sign-up for that individual. This will be granted in exceptional circumstances only.

Examples of Appeals which might be upheld:

1. An Interim Manager who has billed over 200 days in a 3 year period prior to the immediate 3 years
2. An Interim Manager who is practising, but who through illness or disability cannot meet this level of commitment
3. An Interim Manager with highly specialist skills who might only be employed on an ad hoc basis

If you wish to lodge an appeal / request for membership, please email membership@ima-institute.com providing an explanation of your grounds of appeal.


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