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

At Lawspeed’s fully attended one day conference held on 11th October 2007, Robin Wythes, of HMRC and responsible for MSC legislation,
indicated that HMRC recognises the difficulties that employment
businesses have in identifying whether a contractor is operating through
an MSC. 

In order to reduce concerns over debt transfer he said that an MSC
tax and NICs debt would not be transferred to an employment business if
the individual worker providing the work services through an MSC was
already operating through a limited company at the time he/she first
approached the employment business. This is because in those
circumstances it could not be said that the employment business had
either encouraged or been actively involved in the individual providing
their services through the particular company.

Adrian Marlowe, Managing Director of Lawspeed, said “this
clarification of  HMRC policy was warmly welcomed by all attending our
conference and it is an enormously helpful clarification which should
assist all employment businesses to identify cases where there is no
risk of debt transfer”.

He went on to say “In practice the policy as explained requires
that the company must already be in existence before the worker contacts
the employment business, and the individual continues to operate
through that company  if all risk is to be avoided”.

Robin explained that “the policy is consistent with the aims of the
legislation, which is not designed to penalise recruitment companies
where they have had no encouragement in the use of a company.  There can
be no encouragement if the MSC company is already in existence at the
outset”.

It is understood that a formal  announcement concerning this  policy clarification is to be posted  shortly on the HMRC website.

Robin
also addressed speculation that there is to be an audit scheme of MSC
Providers. He said “firstly there emphatically is not going to be any
accreditation scheme operated by HMRC. We do not have the resources to
run such a scheme. However, we are considering a scheme whereby MSC
providers could be audited by third parties applying a published HMRC
Audit Standard. This would then determine whether or not the MSC
legislation applied. The idea is that this should allow employment
businesses to safely deal with those that have been reviewed applying
the Audit Standard where such a review confirms that the MSC provider’s
client companies are not MSCs. No decision has as yet been made as to
whether such a scheme will proceed for certain and there is a lot of
work yet to be done in this area, but we are looking positively on the
idea. If a decision is made in favour of the scheme, we would aim to
publish the requirements by the end of this year, bearing in mind that
the tax transfer rules will apply to employment businesses from 6th
January 2008”.

Adrian Marlowe commented “Any such scheme would be of great benefit
to the industry. However as things currently stand questions remain as
to whether any scheme will definitely go ahead, and if so what the
ingredients would be.  This will no doubt involve a tricky balancing act
between providing a level playing field for all providers operating in
this area, and the government achieving its objectives under the MSC
legislation”.

Adrian went on to say “The limited company clarification should
also help contractors already operating through limited companies when
they registered with an employment business, as there will be no longer
any need for the employment business to ask lots of MSC related status
questions”.

Lawspeed specialises in advising recruitment companies and
contractors. For further information please contact Lawspeed on 01273
236236 or email [email protected].