Tackling Managed Service Companies: HMRC launch further consultation

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In preparation for its proposals for a new managed service company (MSC) tax regime in the 2007 Finance Bill, HMRC has launched an addition to its December 2006 consultation on "Takling Managed Service Companies". The additional draft legislation just published allows the PAYE debts of MSCs to be transferred to appropriate third parties.

HMRC's objections to MSC schemes are basically that they have allowed workers involved to avoid tax and NI on income which due to the underlying nature of individuals contract should be taxed as employment income. HMRC believe that most workers who supply their services via MSCs should be with the intermediaries legislation IR35. However, they suggest that MSCs are not following the rules and as the contract-by-contract approach required to determine wheth...

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09th Feb 2007 16:20

Comment ....
Exactly the point I made in my own post - given that IR35 compliance is so poor at present, just how does the Government think the new MSC rules will be of any benefit? In particular, the transfer of debt provisions appear to be meaningless since, as has been pointed out, MSCs will virtually cease to exist. If they go, the debt provisions (which apply only to MSCs) go as well! It seems that the MSC legislation will then exist solely as a deterrent, which has the same effect as saying that MSCs are illegal. It becomes obvious as I type therefore that the Government is not seeking to collect the correct amount of tax etc from those companies, it is setting out to wipe them from the face of the earth. Once the workers are then all in the same IR35 barrel, perhaps we'll see a more determined enforcement regime.

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12th Feb 2007 14:10

"HMRC believe ..."
I am reminded of a deflated balloon being squeezed in the fist - it just pops out somewhere else !

The clients of MSCs are principally self-employed -or would be if not prevented from acting as such by agencies with an eye on the PAYE legislation.

IR35 squeezed in one place, this is now squeezing in another - or trying to do. When it pops out somewhere else again, what will get squeezed next ?

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13th Feb 2007 17:44

Why doesn't Gordon Brown have to face questions on this baloney
I am surprised that the Big 4 have not been up in arms about this.

It is crazy legislation. They used the excuse that all contractors were criminals are criminals to introduce IR35 and now they are telluing us the same. The Treasury claim they will collect £1billion extra from these measures but offer no scrap of evidence to support that. It is all just the usual paranoid ramblings of the Treasury - a bit like its master Gordon Brown.

Everyone will just set up as their own company if they can't be in an MSC. It will mean more in admin for contractors but hardly a penny more for the Treasury. Why doesn't Gordon Brown himself explain the logic of this move?

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