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RACS DSC
Frequently Asked Questions for Agencies

1
What is the difference between RACS DSC and the umbrella product?

The RACS DSC (Direction, Supervision or Control) payroll product is arguably the safest, most risk-free platform available to temporary recruiters today. The product is a limited company payroll solution whereby the contractor becomes a director of their own limited company. RACS Collective (UK) Ltd (RCUK) will act as company agent for each DSC limited company.

2
How does the product work?

  • After taking into account expenses allowable for Corporation Tax, the DSC company will pay out any remaining income to the contractor as employment income (or PAYE), so that the income is taxed at source.
  • RCUK is instructed to collect monies for and on behalf of HM Revenue & Customs (in respect of PAYE tax, National
    Insurance or VAT). These monies will be held in a client account, and RCUK will pay all liabilities when due. The DSC company will never make a profit and therefore dividends cannot be drawn and no Corporation Tax liability will arise.

See the ‘Assurances & Indemnities’ document for further information.

3
How does RACS DSC treat the Supervision, Direction, or Control test to ascertain a contractor's eligibility for T&S expenses tax relief?

RACS DSC assumes that all contractors conduct their assignments under some form of Direction, Supervision or Control therefore rendering them unable to claim tax relief on travel and subsistence expenses.

4
How does RACS DSC comply with IR35 legislation?

Technically, we assume that all contractors are caught by IR35 as no income is paid other than in the form of employment income. No dividends or deemed salary payments are permissible.

5
How does RACS DSC fall outside of MSC (Managed Service Company) legislation?

Condition 3 of MSC Guidance permits that all income is paid as employed income after the deduction of genuine expenses. All four conditions need to be met to be an MSC.

6
How quickly can RACS Group enrol any new contractors onto the RACS DSC payroll model as opposed to umbrella?

RACS Group commenced enrolling contractors onto the RACS DSC product in mid-February 2016. The fully automated process allows dual registration (on both RACS DSC and umbrella) enabling contractors to continue to claim allowable tax relief on their expenses until 1st April 2016 (for final payment before 6th April 2016). This will enable a seamless transfer to RACS DSC from 6th April 2016.

7
How will RACS Group explain to existing contractors that they should make this change to protect their level of take-home pay as they can no longer claim tax relief on travel and subsistence expenses from April 6th 2016?

  • We are sending weekly communications via email to contractors explaining the change in legislation and what they need to do before 6th April 2016.
  • The RACS DSC registration process will also include a detailed email to each existing contractor currently using our
    umbrella product who has claimed expenses. The email will enable the contractor to instantly select either RACS DSC or to remain on the umbrella model (but with no T&S expenses).

8
Will our contractors be able to choose an alternative to RACS DSC?

In short, yes. All contractors registering with RACS Group will receive an independent illustration of the payroll products available to them based on their professional circumstances. This illustration is generated by RACS Group's industry leading Best Advice Matrix (BAM) software and ensures each contractor can make a fully-informed decision as to which product is best suited to them.

9
Will my agency still be responsible for the quarterly intermediaries' reports, required by HM Revenue & Customs for RACS DSC companies?

In short, yes. Formatted lists of contractors working through RACS DSC are included in RACS Group's online Agency Portal. Just log into your agency account and the report can be downloaded in CSV format ready for submission to HM Revenue & Customs on a quarterly basis..

10
What information does an agency need to submit to HM Revenue & Customs each quarter?

  • Your agency only has to report the gross amount paid over to the RACS DSC companies and you will have evidence of this figure in your weekly schedule.
  • RACS Group's internal systems will also record this information and store it on your online agency portal under the
    ‘Reports' section. You can cross-reference each line for every payment made.
  • RACS Group will send a monthly RTI submission to HM Revenue & Customs for each DSC company detailing all ERNIC (Employers National Insurance Contributions), EENIC (Employees National Insurance Contributions) and PAYE (Pay as You Earn) tax paid per period. This is similar to RACS Group's existing umbrella process.

11
Will the RACS DSC contractor need to submit any information to HM Revenue & Customs?

  • In essence, no. Full reporting and RTI information will be submitted on their behalf on a monthly basis.
  • The RACS DSC team will ensure that quarterly VAT returns, annual accounts, annual return, annual Corporation Tax returns (CT600) are submitted on time.

12
Under RACS DSC, is the agency responsible for any tax liabilities?

  • No. RACS DSC will account for all tax and National Insurance due on employed income after allowable expenses, as well as VAT if applicable. There are no tax avoidance or agency liabilities under the RACS DSC model.
  • Under GAAR (General Anti-Avoidance Rule) legislation, for tax avoidance to be proven, there must exist an unintended tax loss to the Revenue. RACS DSC falls outside of GAAR due to the structure of the model with all payments made as employment income (which will be intended) and any allowable expenses submitted within an annual Corporation Tax return (again, this will be intended).
  • If the Flat Rate VAT Scheme (FRS) is applied for and used, this is similarly listed with HM Revenue & Customs including the qualifying sectors and relevant percentages. Additionally, HM Revenue & Customs must accept a FRS application in the first instance, so this will be intended.
  • In summary, there cannot be any unintended tax losses under the RACS DSC product.

13
What happens if a RACS DSC contractor stops using RACS Group and moves to another payroll provider?

  • If a RACS DSC contractor decides to leave us, their details will no longer appear on the schedules we submit to your agency. If they do submit an invoice other than from RACS Collective (UK) Ltd, you should inform us as well as request details from the contractor and assurances that they will not pay themselves a dividend (as this will result in a breach of MSC legislation). In all instances, your agency is still not liable.
  • As an additional guarantee, RACS Group will indemnify all agencies for the period that the RACS DSC contractor works through us. You are not and cannot be liable.
  • RACS Group's bespoke in-house software will deplete all monies within the RACS DSC company after each and every payroll. Once all deductions have been paid, the remaining money will be paid as employment income ensuring that the company does not retain a profit and can therefore not draw a dividend. The agency cannot be liable.

14
Does the worker have any responsibilities or obligations when they leave?

Because after every payroll there is no money left in the company, they cannot have a profit, realise a dividend or pay Corporation Tax. RCUK will have ring-fenced all tax, NIC and VAT monies (where applicable) in the client account and will pay HM Revenue & Customs when due. Upon payment of our fee (£25+VAT) we will do all necessary to close the company formally and have it removed from Companies House. If the contractor does not wish to pay the fee, we will transfer the registered office to the contractor's home address and they can deal with the closure of the company themselves. 

15
What prevents RACS DSC contractors from paying themselves a dividend?

  • The Memorandum & Articles of Association agreed at the formation of the RACS DSC limited company, forbid the
    distribution of dividends.
  • RACS Group's internal systems have been designed to prevent any dividends being paid and there will never be any profit left within the RACS DSC company as all monies are paid as employment income only.

16
Who is going to manage the financial affairs of each RACS DSC company including end of year account submissions?

  • RACS Collective (UK) Ltd (RCUK) has been set up as a separate commercial entity to act as the contractors' accounting agent.
  • RCUK will submit invoices on behalf of the RACS DSC company and manage all tax, National Insurance and VAT monies in a dedicated client account.
  • RCUK is instructed to pay net monies to the contractor's (director's) personal bank account as employed income only. A business bank account is not required for this purpose.
  • RCUK is instructed to pay all monies due to HM Revenue & Customs ensuring there will be never be an outstanding liability to HM Revenue & Customs.
  • RCUK will submit quarterly VAT returns to HM Revenue & Customs, annual statutory accounts and Annual return to
    Companies House, and an annual Corporation Tax return (CT600) for the director to HM Revenue & Customs. 

17
Will contractors understand their responsibilities as a company director?

  • RCUK will add company information to the RACS DSC's online contractor portal which includes a section with links to PDF documents clarifying their responsibilities. However, we will also fully advise the contractor of all their responsibilities during the application process and complete all the necessary documents during their directorship.
  • The RACS DSC application process is actually simpler than that for the umbrella product as we do not need to explain various issues such as Pensions Act, auto-enrolment, NMW (National Minimum Wage), NLW (National Living Wage) and holiday pay.

18
Will our agency be liable for any mismanagement of the RACS DSC limited company?

  • Your agency cannot be held responsible for a third party limited company unless you actually know that the individual is in breach of IR35 and you have been actively promoting the company. Only if these two criteria are proven can your agency be at any risk of ‘debt transfer'.
  • It should also be remembered that IR35 legislation cannot be breached as RACS DSC companies are unable to pay
    dividends. Also, should the RACS DSC company be transferred from RACS Group or indeed closed, your agency is not liable.

19
What do we say to contractors who are cautious about managing their own limited company?

  • RACS Group will explain fully to all contractors the implications and responsibilities of registering with the RACS DSC payroll product. Given that they are largely unable to reclaim tax relief on home-to-work travel and subsistence expenses, running their own RACS DSC company is actually less arduous than managing an umbrella model.
  • The payslip is also easy to understand and provides a straightforward analysis of gross and net pay, statutory deductions and our fees.
  • Typically, the contractor's earnings will be greater on the RACS DSC product than for either PAYE or umbrella (no T&S expenses) after 6th April 2016.

20
How does VAT work under the DSC product?

  • RACS DSC contractor will have the choice to register their company for Value Added Tax (VAT) and it will be solely their decision to do so.
  • The contractor will also have to decide if they wish to register for either Standard Rate VAT (currently charged at 20%) or the Flat Rate VAT Scheme (FRS).
  • The rate at which Flat Rate VAT is charged is dependent upon the actual sector in which the company operates and typically varies from 6.5% to 14.5%. A full list of the Flat Rate VAT rates per each sector can be viewed at www.gov.uk/vat-flat-rate-scheme/how-much-you-pay
  • Any limited company can elect to register for VAT, even if the turnover is not expected to meet the current mandatory VAT threshold of £83k. When a company's turnover reaches this threshold, it is legally obliged to register for VAT.
  • If VAT registration is chosen, the RACS DSC company will typically be issued with a VAT number within 4-6 weeks of registering.

21
Contractors may register for Flat Rate VAT. What happens if HM Revenue & Customs decide to remove the Flat Rate VAT Scheme (FRS)?

VAT regulations in general exist under the 6th Directive within European Law. Changes to legislation would involve a wider reaching audience. However, it is also vital to understand that RACS DSC still works to the benefit of both the contractor and the agency should Flat Rate VAT not apply.

22
Is the RACS DSC company liable for Corporation Tax?

Corporation Tax applies to company profits. The RACS DSC company will never have a surplus of money or retained profit at any time as all monies are paid out as employment income. Therefore no Corporation Tax will be due as there will be no profit within the company.

23
Are expenses allowable under RACS DSC?

  • Tax relief on allowable business expenses will be allowable and will be processed in a similar way to the umbrella model and paid out of gross income.The RACS DSC fee and insurance costs will be considered as allowable expenses from the launch of the product.
  • The RACS DSC fee and insurance costs will be considered as allowable expenses from the launch of the product.
  • Under current Travel and Subsistence legislation, home-to-work travel and subsistence tax relief on expenses is not
    permissible.
  • Once the product is fully launched, it is likely that other expenses (that are allowable for Corporation Tax) will be accepted and therefore it is advisable to retain receipts for any business related expenditure.
  • A full list of expenses that are allowable for Corporation Tax will be published in a separate document. 

  • See the 'Allowable Business Expenses' document for further information.

24
How much do you charge to administer a RACS DSC company?

The RACS DSC company is charged 4% + VAT of its gross weekly earnings, capped at £30 (+ VAT) per week.

25
Is there any liability of debt transfer to the recruitment agency?

There is no risk of debt transfer from the RACS DSC company as all income is paid to the contractor as employed income. All tax and National Insurance contributions are paid every payroll period thus avoiding any risk of unpaid liabilities to HM Revenue & Customs.

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Copyright RACS Group 2017 - Recruitment and Contractor Services Limited

Registered in England & Wales – Company No. 6073586 – VAT No. 891 863 869
Registered Office – RACS Group House – Three Horseshoes Walk – Warminster - Wiltshire – BA12 9BT

Terms & Conditions - Privacy Policy - Sitemap
08/17

Copyright RACS Group 2016 - Recruitment and Contractor Services Limited

Registered in England & Wales – Company No. 6073586 – VAT No. 891 863 869
Registered Office – RACS Group House – Three Horseshoes Walk – Warminster - Wiltshire – BA12 9BT

Terms & Conditions - Privacy Policy - Sitemap
08/17