The government's Managed Service Company legislation is still causing uncertainty and confusion, and is having the exact opposite effect to what was intended, the October meeting of the Recruitment Society has heard.

Matthew Brown, managing director of umbrella company Giant Group told the audience at KPMG's Blackfriar's offices that contractors were being forced into "Googling" for service providers, as agencies preferred to "do nothing" rather than recommend any, for fear of being caught by the debt transfer provisions of the legislation. This had lead to many choosing unscrupulous operators often operating offshore, said Brown.

Brown claimed that some agencies knew that contractors were paying less than they should in tax and NI. The overall effect was that the legislation was reducing the government's tax take, Brown claimed - the opposite of what was intended.

Brown said that HM Revenue and Customs' audit standard was an opportunity for the government to get in the right amount of tax. However, it had to answer one basic question: "If a service provider has this audit standard are you [as an agency] free from debt transfer. If not it is worthless."

Alasdair McGill, managing director of Freelance Euro Contracting, a provider of managed services to contractors operating in the North Sea told the meeting that there was "a huge lack of understanding" about the legislation.

However, this confusion was not uniform across the industry, he said. "Some of the worst are the very large agencies, where there is no communication between head office and the business - they are saying different things," said McGill. "Some of the best are very very small agencies," he added.