MSC Legislation Update

Following the publication of the draft Finance Bill in March 07 there
has been considerable speculation concerning the meaning of some of the
definitions. In particular, the section that excludes organisations that
provide accountancy and legal advice allows interpretation that
facilitates the suggestion that some service providers to contractors
can continue as usual. Does it or doesn’t it?

In our opinion, if this definition is allowed to remain as currently drafted there is
likely to be litigation between HMRC and those service providers that do
not pay contractors purely by way of employment. The stakes are clearly
high for both sides. If HMRC were to lose the floodgates would once
again be open. If HMRC were to win the service provider and the
contractors concerned would face a substantial bill.

One conclusion from the above may be that HMRC will not attack any
organisation that is relying upon the accountancy advice exclusion
unless it feels it has a cast iron case. Since a cast iron case may be
difficult to establish it may follow that HMRC will be reluctant to move
into attack mode. The result could then be a similar stalemate to that
which preceded this legislation in relation to IR35, allowing service
providers once again to flourish.

Perhaps more important than the wording of the exclusion, the tax bill may end up on an agency’s
doorstep under the proposed third party liability provisions if using
contractors through such a service provider. This bites in August 2007
if the agency collaborates with the service provider or otherwise
“influences” the contractor to operate through a limited company.
Therefore agencies that are risk averse should avoid use of such service
providers at least until the position is clarified.

The provisions within the Finance Bill are already in effect due to an order
made on Budget Day. However it is yet possible for the draft Finance
Bill to be amended, and there is a groundswell amongst both agencies and
accountancy firms for amendments to be made to make the position more
clear, not the least based on the principle that legislation should be
clear and unambiguous. We would certainly urge the Treasury to amend on
this basis.

The Finance Bill is being debated this month and any
changes should be known by mid to end June.

Some comments from our first seminar on the 3rd April:

“The presentation was assured and very informative… Hugely
impressed (as ever!) with Adrian Marlowe, and Robin Wythes involvement
was also highly valuable. It was worthwhile to take the time to drill
down into the details.”
Gavin Tagg, Spring Group Plc

“Exceeded my expectations – good event.”
Rob Crossland, Parasol Limited

“Very helpful.”
Natalie Saul, Project IT Resource Limited

“This was a ‘must-attend’ seminar with comprehensive analysis.”
David Owen, United Recruitment Solutions (UK) Limited