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 scheme for a
number of different reasons, some technical and some practical. With
regard to agencies in reality the only advantage of an audit scheme
would be to guarantee that they are not liable for MSC contractor tax if
they refer or recommend to an audited provider. Since HMRC could not
agree to that for legal reasons, the idea of an audit scheme was always
going to be of doubtful benefit. In addition an audit scheme had the
potential to confuse agencies and limit the market.”

Adrian went
on to say “in fact HMRC has issued some helpful guidance that agencies
can rely upon. Where a contractor’s company already exists at
registration with an agency, the agency is unlikely to be liable if the
company turns out to be an MSC. Also an agency cannot be liable if it
recommends a candidate to an umbrella company that pays only by way of
employment income.” In all other circumstances agencies should take care
not to refer or recommend and should seek advice if in doubt.

With
only a few weeks to run before agencies could become liable for MSC tax
(6th January 2008) this issue does require urgent attention by those
who may have been relying upon the emergence of an audit scheme and who
otherwise have done little to prepare.

Lawspeed is involved in setting up membership trade body to represent the
interests of umbrella companies and to operate as a flag for quality
umbrella providers. For more information or to join please call Adrian
Marlowe, Ravi Murphy or David Vincent on 01273 236236.

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HMRC has clarified its current position in relation to the MSC legislation, but some questions remain.