Managed Service Company Providers (MSC Providers)
When an Accountant isn’t an Accountant
Although the MSC legislation is targeted at managed service company providers rather than the PSCs themselves, the definition of the MSC provider is drawn extremely wide. As a result many MSC Providers have positioned themselves as "accountants" and are aiming to ensure they are not caught by the legislation.
It is our belief that HMRC purposefully kept the definition wide so as not to allow providers to be outside, or exempt, from the legislation. HMRC has issued a clear signal that some accountancy firms will be caught by the MSC regulations - despite an exemption for accountants.
It is our belief that HMRC purposefully kept the definition wide so as not to allow providers to be outside, or exempt, from the legislation. HMRC has issued a clear signal that some accountancy firms will be caught by the MSC regulations - despite an exemption for accountants.
HMRC has issued the following guidance:
"In response to the legislation published at Budget, a number of providers are telling their clients that they (the providers) are not MSC providers, rather which they are accountants. They are therefore telling clients that their companies are not caught by the legislation.”
"Based on the advertising material seen, it is HMRC’s view that many of these organisations are MSC providers as defined in the new legislation. Whether or not the new tax rules apply will depend on the precise relationship between the MSC provider and the client company.”
"Individuals operating through service companies, particularly those who believe that prior to 6 April they would have been within “IR35”, should consider carefully their and their company’s relationship with the MSC provider. If a service company is within the legislation and the company fails to operate PAYE, this could result in individuals being held personally liable for the PAYE debts of the company.”
There is a high risk that many freelance contractors working through their own PSC will unwittingly be caught by this legislation purely because their service provider will be caught. As a result the contractor could face substantial claims for back tax, penalties and interest payments.
As from 1st January 2008 under the transfer of debt provisions Recruitment Agencies and end Clients could become liable for the debts.
Until the courts test and clarify this legislation GenieWorldUK is recommending that all contractors currently using personal service companies transfer to a compliant PAYE Umbrella.
"Based on the advertising material seen, it is HMRC’s view that many of these organisations are MSC providers as defined in the new legislation. Whether or not the new tax rules apply will depend on the precise relationship between the MSC provider and the client company.”
"Individuals operating through service companies, particularly those who believe that prior to 6 April they would have been within “IR35”, should consider carefully their and their company’s relationship with the MSC provider. If a service company is within the legislation and the company fails to operate PAYE, this could result in individuals being held personally liable for the PAYE debts of the company.”
There is a high risk that many freelance contractors working through their own PSC will unwittingly be caught by this legislation purely because their service provider will be caught. As a result the contractor could face substantial claims for back tax, penalties and interest payments.
As from 1st January 2008 under the transfer of debt provisions Recruitment Agencies and end Clients could become liable for the debts.
Until the courts test and clarify this legislation GenieWorldUK is recommending that all contractors currently using personal service companies transfer to a compliant PAYE Umbrella.