HMRC recently published extra guidance on intermediary companies and Managed Service Companies (MSCs).

The Managed Service Company (MSC) regime was introduced because, although the IR35 applies to some intermediary companies enforcing the rules is too difficult and time consuming for HM Revenue and Customs. Additionally, even when a tax debt was established, MSCs would invariably escape payment by ceasing to trade.

• Under IR35 the contractual nature of the relationship between the worker and the client is examined and any deemed earnings are subject to PAYE and NICs.
  
• Under the MSC regime all sums received by a worker (or an associate of the worker) as a result of participating in an MSC scheme are subject to PAYE and NICs irrespective of the nature of the relationship between the worker and the client.

New guidance:

Intermediary companies claiming not to be MSCs

Since the introduction of the MSC regime, many intermediaries have attempted to circumvent the rules and claim that they are not MSCs. HMRC says it has taken counsel’s advice and now considers that intermediary companies are MSCs even if:

• The MSC provider is an officer or partner of the intermediary.
  
• The intermediary company is based outside the UK.

Tax status under CIS rules of intermediate companies and MSCs

When a construction worker receives payment via an intermediary (whether or not an MSC), the intermediary will be treated as the worker’s nominee.

• The CIS rules specify that in these circumstances both the nominee and worker must be registered for gross payment before a contractor may make payments gross to the intermediary on behalf of the worker.

Employment businesses and agencies

HMRC will use its powers to transfer tax debts to employment businesses and agencies in accordance with its powers under the transfer of debt provisions. It confirms that obtaining a written assurance from the intermediary or the worker that the intermediary is not an MSC is not enough to guarantee protection from the transfer of debt provisions. The provisions will only be applied where there is evidence that the business or agency was actively involved in the provision of the worker's services through the MSC and that the debt is irrecoverable from the MSC provider and the worker. An employment business or agency is not protected from the transfer of debt provisions simply by asserting that the company is an umbrella company.