Confusion reigns over MSC approval schemes – or does it?

Accreditation scheme For some months there has been speculation that an accreditation scheme, whereby HMRC will exclude certain organisations that are accredited from the scope of the MSC legislation, is under consideration by HMRC. Whilst this may be in the interests of those organisations that operate as centralised “accountancy” service providers  to workers provided via limited companies, the idea has always been open to question. Within the legislation the government is empowered to exclude certain types of organisation by order. On the face of it, to exclude centralised service providers that otherwise would be classed as Managed Service Company Providers would appear to be out of the question as defeating the objective of the legislation. Therefore there would need to be some approval method by which such organisations would become accredited – perhaps by accepting that advice given and services offered are in line with tax legislation.   HMRC has…

MSC Legislation – Further Guidance

HMRC issues further guidance in relation to the MSC legislation As part of its ongoing monitoring of events related to the MSC legislation HMRC has identified areas where it feels additional clarification would be required, in particular to address certain misleading information. This further guidance can be found at http://www.hmrc.gov.uk/employment-status/monitoring-legislation.htm. It is important to note that HMRC emphasises that contractors genuinely in business on their own account are not intended to be subject to the MSC legislation, and therefore pose no risk to an employment business. However it is not clear what HMRC means by the words ” in business on their own account” since there are no established tests to determine this, and the use of these words is a departure from the usual test that is applied which is based upon deemed employment status within an assignment. Could this statement be creating more questions than answers? HMRC has…

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…

Budget Note – MSC Legislation Changes

Aside from the increases in beer, wine, cigarettes and duty on most polluting cars, the second most important issue for you will obviously be the MSC legislation update. The Government has confirmed that legislation will be introduced to achieve the objectives set out in the consultation document. But it is responding to key concerns raised during the consultation and will: strengthen the definition of a Managed Service Company (MSC) to give greater clarity and certainty; amend the debt transfer legislation to make clearer that those simply in receipt of the services of a worker operating through an MSC are not within its scope; and delay the application of the debt transfer legislation to third parties (other than MSC scheme providers, and directors, office holders or associates of the MSC) to allow more time to make the necessary changes to their operations. Despite earlier Treasury denials that there would be any…

8th February 2007 MSC consultation phase 2 – Government releases third party debt provisions

Following the consultation announced on 6th December 2006 “Tackling Managed Service Companies”, the government has now published its first draft of the threatened third-party liability provisions, making third parties liable for the tax debts of an MSC. This again is within a consultation to which responses are required by 30th April.  The consultation is limited only to whether the draft legislation is wide enough to achieve the objective of stopping tax avoidance through scheme providers, and whether third parties, for example agencies and end users, could be held liable on any basis other than that they knew or could reasonably have been expected to know of the arrangement. However it is the stated intention that the new laws in final form will apply to any tax debt incurred from 6th April 2007. Accordingly whilst some may be tempted to consider that there is time after 6th April 2007 to change…

Lawspeed Meets with HMRC

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…

HMRC announces start of a review of the concession

Note 25th June 2010 – As can be seen from the article below HMRC started a review of the concession in July 2006. In April 2008 it was announced that the concession would be withdrawn after 1 year, and on 1st April 2009 the concession ended. The concession was particularly useful for public sector organisations, banks and charities, none of which could set their VAT payments against VAT charges as they are VAT exempt. Small businesses with low turnover, and start up businesses also may not register for VAT if their turnover is below the registrable limit, and thus coud take advantage, but even businesses that can charge VAT benefitted from the cash flow advantage of hiring agency workers without payment of VAT on the workers charge element. The article below contans a brief explanation of the position in 2006. July ’06 HMRC announces start of a review of the…

Extending paid holiday entitlement

Government announces consultation on the increase of paid holiday entitlement under the Working Time Regulations to include public and bank holidays. The DTI has announced a consultation on extending the current right for all workers to 20 days’ paid leave each year by a further 8 days to reflect bank and public holidays “UK Holidays”). If after the consultation the government decides to proceed with legislation to extend leave entitlement, the result would be that all workers will be entitled to 28 days paid holidays instead of 20 days. Some issues Most employers already absorb UK Holidays as paid, since most employees are not paid on an hours worked basis. However an extension of leave entitlement would particularly affect employment businesses supplying paye temps, who are paid on an hours worked basis only. The net result of any extension would be to push the amount attributable to holiday pay up from…

Cable & Wireless v Muscat Court of Appeal

It is a finance directors role, amongst other things, to find ways of reducing overhead. Costs actually saved without affecting performance is the ideal. Attributing costs to one type of overhead instead of another can also have benefits, allowing budgetary targets to be met. Traditionally one method for larger organisations to reduce and/or reallocate cost has been to reduce headcount amongst employees. Laying off staff removes the entire overhead but loses the resource, and thus can affect performance. Converting staff from being employees to being self employed however has enabled savings to be made without necessarily affecting performance, and historically has provided the added bonus of achieving hiring flexibility. Non employed staff do not need statutory notice to end the contract, and do not have the right to claim unfair dismissal or redundancy (or for that matter other pure employment rights) – and so such staff can be fired at…

Good news on employment status

Less than 4 weeks after the Court of Appeal’s decision on Cable & Wireless v Muscat, that a contract of employment can be implied between an agency worker and an end user, the Government announce that there is no need for further legislation on employment rights for agency workers. The timing of the announcement could be viewed as an acceptance by the Government of the decision in Cable & Wireless, since the consultation on this issue took place almost 4 years ago. Some commentators are wrong by suggesting that recruiters and end users need not worry about the decision in Cable & Wireless because the facts are very specific. Don’t forget this decision upheld the views in the case of Dacas which involved a PAYE temp cleaner, who had not previously been an employee. Although the Government’s decision is good news, since they are not giving employment rights to every…