HMRC Drops MSC Audit Scheme

Following representations put forward by Lawspeed, HMRC and the Treasury has abandoned the idea of introducing an audit scheme in the foreseeable future. In recent months HMRC had announced that it was considering a scheme which may allow for certain third parties to assess whether a provider organisation is compliant with the MSC legislation. However it had held back from making a quick decision despite pressure from various quarters to do so. In announcing its decision not to proceed for now, HMRC has said that it will discuss the impact with external stakeholders. Adrian Marlowe of Lawspeed said “This is a tremendous result both for umbrella companies and recruitment agencies. So far as umbrellas are concerned there were elements of the scheme that appeared to give an advantage to various providers in an unfair, and, some would say, unnecessary way. Also there were serious questions about the legality of any…

Who could be an MSCP?

In April 2007 the government introduced legislation to force contractors to pay employment taxes where the contractor obtains advice from managed service company providers (MSCPs). In some circumstances, this debt could be transferred to the MSCP. For an organisation to be an MSCP all that is required is for it to be in the business of promoting or facilitating the use of companies by contractors, which could catch out some agencies. For the legislation to apply the MSCP has to be “involved” with the contractor company. Being “involved” is defined to include, amongst other things, being in receipt of ongoing payments, or promoting any scheme for making good tax losses, for example tax indemnities or insurance. A contractor company caught by these rules is known as a managed service company (MSC). The legislation as currently drafted therefore exposes any company to risk of having to pay MSC employment taxes if…