MSC legislation

HM Revenue & Customs issues warning on Managed Service Company legislation

HM Revenue & Customs (HMRC) has issued new guidance on the Managed Service Company (MSC) legislation, and warns that it intends to take action against non-compliant companies.

HMRC says that where it considers that companies and partnerships otherwise fall within the Managed Service Company legislation, but claim not to be MSCs because the provider is an officer/partner of the intermediary, these companies and partnerships are in fact MSCs.

“HMRC will now look for suitable cases to investigate and, where appropriate, challenge and litigate.”

The three types of intermediaries identified by HMRC as being potential ‘targets’ are:

the ’self-employed model’ where contractors work as sole traders via a specialist company
the self-employed’ model as above but under Construction Industry Scheme (CIS) rules.

Offshore providers

HMRC says the guidance has been issued after it “considered fully” the arguments advanced by various types intermediaries as to why they are not MSCs.

Martin Hesketh, managing director of accountancy, tax advice and financial support services provider Brookson, told Recruiter that the guidance was a clear message that the Revenue was serious at “enforcing the MSC legislation”, including the debt transfer provisions. These could affect agencies, where they were involved with non-compliant companies, added Hesketh.

The guidance is contained on HMRC’s website:

http://ase.emv3.com/I?a=A9X7CkCPJj,XsIhvz,bMfBzgSg

Treasury consultation on ‘Managed Services Companies’ A consultation on changing the tax regime for ‘managed services companies’ was launched by the Treasury on Wednesday, the day of the Chancellor’s pre-budget report. The consultation seeks to change the way in which a large number of contractors are taxed when they work through composite companies. The intention is that composites will have to pay PAYE and National Insurance contributions of contractors working through these companies on all earnings related to employment from April 2007. There is also a suggestion that should it prove impossible to recover unpaid tax from a composite company then third parties, such as recruitment agencies, would be liable for the unpaid tax. With respect to tax refunds for travel, it is intended to prevent the practice whereby contractors claim tax relief for travel from their home to their place of work to bring them into line with other employees. The REC recognises that these proposals will have a large impact on the recruitment industry. The Treasury estimates that 250 000 workers currently work through composite companies and that they will be able to recover £350 million from these changes to the system. The REC will be responding with a strong collective voice to these changes and will consult with other stakeholders. An initial meeting with the Professional Contractors Group was held yesterday. To ensure that members concerns are fully taken into account the REC will consult the Board, Employment Policy Committee and relevant sector groups on these changes. If you have any initial comments on the Treasury’s consultation please e-mail Jason.clayton@rec.uk.com The REC External Relations team will then feed the results of this consultation back to the Treasury and will work to ensure that any changes do not create additional bureaucracy for the recruitment industry.

The Treasury consultation can be read at:

http://www.hm-treasury.gov.uk/pre_budget_report/prebud_pbr06/other_docs/prebus_pbr06_odmanagedservices.cfm