In April 2007 the government introduced legislation to force contractors
to pay employment taxes where the contractor obtains advice from
managed service company providers (MSCPs).
In some circumstances,
this debt could be transferred to the MSCP. For an organisation to be
an MSCP all that is required is for it to be in the business of
promoting or facilitating the use of companies by contractors, which
could catch out some agencies. For the legislation to apply the MSCP has
to be “involved” with the contractor company. Being “involved” is
defined to include, amongst other things, being in receipt of ongoing
payments, or promoting any scheme for making good tax losses, for
example tax indemnities or insurance. A contractor company caught by
these rules is known as a managed service company (MSC). The legislation
as currently drafted therefore exposes any company to risk of having to
pay MSC employment taxes if it deals with numerous organisations that
currently offer services to the contractor or freelancer market.
Examples of organisations that could be MSCPs:
- Providers of IR35 advice who offer membership of a scheme in return for ongoing payment
- Providers of ‘One Stop Shop’ contractor solutions
- Providers of facilities that have the effect of encouraging or enabling contractors to operate through limited companies
- Providers of IR35 tax guarantees or insurance that promise to repay any tax successfully claimed by HMRC
- Organisations that provide easy access to the guarantee or insurance products referred to above
above list is not exhaustive, and makes for uncomfortable reading for
some operators in the industry. Are you dealing with any person or body
that could fit that criteria? If so you could face a tax bill even
higher than if the IR35 legislation was found to apply.
For objective advice on whether the organisation you are dealing with could be an MCSP call Lawspeed now on 01273236236.