Budget 2007: Managed service companies – The end of the road? By Rebecca Benneyworth

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The Budget brought the next phase in the Governments move against the managed service company (MSC) sector. With veiled comments in the Red Book about the withdrawal of labour income as dividends, probably addressing the tax motivated incorporation of service based businesses, the big guns are reserved for what HMRC clearly sees as the worst offenders.

Since the publication of draft measures in the Pre Budget Report in December, much thought (and not a little action) has clearly been put in on both sides to wrestle with this problem. The broad thrust of the planned legislation remains the same to identify Managed Service Companies and then tax their income as employment income.

However, since the draft legislation was released the tax profession has highlighted a number of difficulties with...

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22nd Mar 2007 15:15

Are accountants excluded?
'Firms of accountants providing accountancy or legal services, and employment agencies will be excluded from the new rules, and thus cannot be classified either as scheme providers, or “third parties” for the transfer of liability legislation.'

Not quite - there is a nasty in the revised definition of a managed service company provider. It says 'A person does not fall within subsection 1(d) [making him a provider] merely by virtue of providing legal or accountancy services in a professional capacity.' Note the word 'merely' - an accountant is not excluded is he does any more than that.

Now many accountants provide insurance policies for tax inquiries. That is not an accountancy service - it is an insurance service. So accountants had better give this one up fast if they think they are advising personal service companies.

The debt transfer provisions are even more restrictive. They only exclude accountants 'merely by giving advice in a professional capacity'. That would catch a payroll operator.

David Kirk, MA, FCA, ATII
[email protected]

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