'Ere Be Dragons!

Beware of strange men bearing gifts. ?Caveat Emptor? here be dragons!

Throughout the ages, perceived wisdom has always suggested that a little time spent researching first, before a decision is made, is usually well worth it if one doesn't want to end up regretting it later - armed with 20:20 hindsight.

The same is true of Outsourcing.

Let's take a simple example. To VAT or not to VAT?

Many deals that involve some degree of Invoice Discounting or Factoring will quote a % of Revenue as their basis for Admin. or Interest Charges. However, some will treat VAT as part of the revenue (i.e. the invoice value), whilst others will exclude the VAT from their charge calculation (i.e. the "statutory" sales revenue). Thus, the former appears to quote a price up to 20% cheaper than the second, but will in fact cost you more!

Another example is that of outsourced Invoicing.

Examples exist whereby a perfectly sensible business decision to outsource Invoicing has turned sour because the Recruitment Agency was not aware that the eventual invoices would go out bearing the name (and VAT number and Company Number) of the outsourcing organisation, rather than their own.

The reasons for this practice vary between legal laziness and systems inadequacy, but the more important issues are the ones that affect the Recruitment Agency.

• Any marketing/image benefits of their own name/logo are lost to the Agency. The invoice design and layout majors on the ?invoicer?, not the Agency.
• The sales revenue must then be shown in the Books of the invoicer! Therefore, the size of the Agency's statutory turnover is reduced to just that of its Gross Margin! (hardly good for your credit rating).
• And, oh yes, it also contravenes VAT regulations because the VAT should always "follow the supply" (of staff), which clearly is what the Agency are contracting to do - not the Invoicing organisation!

A final little example of the "devil in the detail" is that of outsourced Payroll.

Be under no illusion. The legal responsibility for PAYE/NI for your temps lies with your company. You can happily outsource the payroll and indeed the deal may include the payment of the PAYE/NI on your behalf. However, the ultimate responsibility itself cannot be outsourced. Yet examples exist where the pay rolling company effectively treat all the temps of all their Recruitment Agency Clients as if they were their own employees, for PAYE/NI purposes. The effect of this is to create one big "pool" of employees who are all registered onto a single scheme with the Inland Revenue. Terrific for the pay roller, just one scheme to administer; but what about you, the Agency?

In this case, the agency does not have their ?own? scheme with the Inland Revenue. Therefore, they cannot be sure that the PAYE/NI is being paid up properly on their behalf. And cannot be confident that they do not have a huge potential liability to the Government because they can't do an independent audit of their own specific Agency's scheme at Cumbernauld - because there isn't one of their own!

So, pitfalls there are indeed, for those who travel unprepared. We all hate delaying business decisions, but sadly the devil does indeed lie in the detail - so beware ye of dragons that lurk there!

Ian Humphrey is the Managing Director of Back Office Support Services Ltd, the market leading Agency outsourcing company and authoritative voice of the back office industry.