The Recruitment and Employment Confederation (REC) is gearing up to fight proposed changes to the treatment of composite companies that could make recruitment agencies liable for contractors' unpaid tax (Recruiter, 13 December).

The structure of composite companies lets several independent contractors, often working through recruitment agencies, become employees and shareholders of that composite company. They receive some of their payments as dividends, rather than wages, saving on tax and National Insurance Contributions (NICs). They can also offset some expenses against income for tax purposes.

The proposed legislation outlined by Chancellor Gordon Brown would allow Her Majesty's Revenue & Customs (HMRC) to pursue debts from "appropriate third parties" if the composite becomes insolvent.

Appropriate third parties are those who set up the composite, or who benefitted from it being set up. This could potentially include recruitment agencies.

Adrian Marlowe, managing director at Lawspeed, said: "I have no doubt that agencies will object to any proposal along those lines, which could make them liable for tax whether or not their agreement with a [composite] states otherwise. We are leading a fight against that aspect of the proposals. Many agencies have already expressed their interest in this to us."

Marlowe added:""There is a possibility that the extension may include retrospective overdue tax."

The REC has invited agencies to a summit on 18 January to discuss all aspects of the proposals.

REC chief executive Marcia Roberts will address the meeting. The other speakers are Trevor Rees, chair of the REC Construction group, Kevin Barrow of law firm Blake Lapthorn Tarlo Lyons, Sandra Robertson, director of Charterhouse and Les Berridge of IT recruiter Matchtech.

The REC will put its case to HMRC as part of a consultation exercise, which runs until 2 March.

•  The summit on 18 January will be at the Hyatt Regency London — The Churchill, 30 Portman Square, starting at 1.30pm.