On 17th January Adrian Marlowe and David Vincent of Lawspeed met with
six representatives of the Treasury to discuss the proposed new MSC
legislation.

During a meeting lasting nearly two hours a number of key points emerged, and the following represents our understanding:

• HMRC does not intend to legislate against genuine umbrella
  companies that employ their workers and pay fully by way of employment
  income.  The draft legislation may be altered, excluding
  umbrellas, to make this clearer.
• Expenses allowable for agency workers, for example for travel and subsistence, is under consideration.
• The intention is to nail IR35 and expenses tax avoidance schemes
  and further steps are underway to identify the constituents of such a
  scheme so that the net can be widely cast.
• A dependency upon establishing financial and management “control”
  as one requirement to qualify as an MSC, as in the current draft, is
  under review.  Amendments to the legislation are expected.
• There
  is likely to be a knock on effect in terms of rates, since those
  workers currently operating through an MSC will receive less net pay if
  the legislation bites. It would appear that the Treasury view on this is
  that any demand by the worker for an increased pay rate will be subject
  to market forces, and may be absorbed by all in the hiring chain,
  namely the worker, the agency and also the end user.
• The Treasury is determined to implement this legislation by April
  2007 regardless of the need to amend the draft and the lack of time for
  agencies and MSC’s to adjust their affairs.
• The suggestion that agencies should be liable for third party tax
  debt of a defaulting MSC remains under consideration.  However,
  points about lack of fairness in the proposal and additional
  administrative burden of an agency wishing to protect itself going
  forward were well received.
• Contractors that are properly operating outside IR35 will continue to be able to take advantage of company tax breaks.

For more information concerning the meeting, or for advice concerning potential outcomes, please contact us on 01273 236236.

Lawspeed will remain in contact with the Treasury and will continue to
represent any interests put forward.  This service is entirely
free of charge.  Please click here to put forward your point of view.

Lawspeed will also be holding a seminar in London on this issue once
the final legislation is to hand.  Details of this will be
published shortly. To register in advance on a no obligation basis click here and insert “register for MSC seminar”.

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