Umbrella or MSC - what's the difference?

[Rialto99]

Thanks Lewis

when you say "So ... you could THINK you are a normal limited company but if you deal with an MSCP you will become categorised as an MSC!" - why is an Umbrella Company like ContractorUmbrella NOT an MSC or MSCP?

R

[Lewis]

Thanks Lewis

when you say "So ... you could THINK you are a normal limited company but if you deal with an MSCP you will become categorised as an MSC!" - why is an Umbrella Company like ContractorUmbrella NOT an MSC or MSCP?

R

I think it is because they are not paying dividends. One of the clauses to define an MSC is that the contractor recieves more income that if they had been paid purely PAYE. As umbrellas pay purely PAYE (i.e. no dividends) the MSC legislation does not apply.

In other words the MSC legislation is to catch a people who are still getting dividends not to catch people that aren't.

[Bluebird]

Thanks Lewis

when you say "So ... you could THINK you are a normal limited company but if you deal with an MSCP you will become categorised as an MSC!" - why is an Umbrella Company like ContractorUmbrella NOT an MSC or MSCP?

R

An umbrella is a company that has employees who pay PAYE on ALL their income.

A Ltd company can either be:
1] An MSC whereby the Ltd Co is managed by a "provider" - Provider = MSCP
2] A "true" Ltd Company whereby it's managed by it's directors

An Umbrella never was and never will be anything to do with an MSC - as previously posted - an MSC paid dividends to it's shareholders as part of their income.

[Rialto99]

I think it is because they are not paying dividends. One of the clauses to define an MSC is that the contractor recieves more income that if they had been paid purely PAYE. As umbrellas pay purely PAYE (i.e. no dividends) the MSC legislation does not apply.

In other words the MSC legislation is to catch a people who are still getting dividends not to catch people that aren't.

Obviously it's an interesting debate. My brother in law was working through a company called Gabem. He was getting paid dividends pre 6th April 2007. He now works through THE SAME LIMITED COMPANY (i.e Gabem 123456 Ltd) but they have redefined his company as being an 'Umbrella Company' because (they say), they've now 'employed' 3 other contractors under the same company and now none of them (including my Brother in Law) own shares in this company - therefore receive no dividends from 6th April 07. Everything is paid out as PAYE after expenses.

I don't know whether the taxman would see this structure as being an MSC or Umbrella. I presume Umbrella given your reason above - anyone else have any thoughts?

R

[Lewis]

I don't know whether the taxman would see this structure as being an MSC or Umbrella. I presume Umbrella given your reason above - anyone else have any thoughts?

R

I think umbrella. But think of it another way, it's a purely hypothetical question and doesn't matter. HMRC are not going to spend money challenging a company that pays purely PAYE, either via IR35 or MSC. Because no matter what the outcome they won't get any extra taxes (ok there might be something to do with expenses but I doubt even they would bother for that). They are only going to challenge companies paying dividends. So why worry what it is classified as.

IR35 and the new MSC legislation is only a problem for those who are declaring dividends and believe they are not caught. The problem being when HMRC disagree.

[Bluebird]

Obviously it's an interesting debate. My brother in law was working through a company called Gabem. He was getting paid dividends pre 6th April 2007. He now works through THE SAME LIMITED COMPANY (i.e Gabem 123456 Ltd) but they have redefined his company as being an 'Umbrella Company' because (they say), they've now 'employed' 3 other contractors under the same company and now none of them (including my Brother in Law) own shares in this company - therefore receive no dividends from 6th April 07. Everything is paid out as PAYE after expenses.

I don't know whether the taxman would see this structure as being an MSC or Umbrella. I presume Umbrella given your reason above - anyone else have any thoughts?

R

If your Brother in Law is no longer a Director or Shareholder then it's an Umbrella, if he is still either a director or Shareholder then it's an MSC.

If it's the later - he should take a look at the legislation that provides the HMRC the ability to transfer Tax & NI debts to officers of the company should they require to do so - ie if one of the other guys working for that company does something wrong and does a runner your BiL could be liable.

[malvolio]

Let's just remind ourselves of the basics here. Composite companies/MSCs were a bad idea because you had some 200k workers taking no commercial risks and making no commercial decisions while claiming to be owners of Limited Companies and taking the tax advantages of that status. That's what upset the Treasury - not to mention several thousand people who ran their own, genuine companies.

Now, if you want LtdCo taxation benefits, you have to own and manage a Limited Company, which is not unreasonable. Otherwise, whatever you do, you pay full PAYE and NICS, which is also not unreasonable.

The only other potetnially worrying thing is how many of the shiny new Ltds set up since April this year and whose owners were formerly clients of MSCPs will find themselves under investigation for PAYE irregularirites...

[Bluebird]

The only other potetnially worrying thing is how many of the shiny new Ltds set up since April this year and whose owners were formerly clients of MSCPs will find themselves under investigation for PAYE irregularirites...

There may not be any irregularities, it may be that a lot of these new shiny Ltds are run by people who are way outside IR35, but just didn't want the hassle of doing all the leg work involved in running a company.

[malvolio]

There may not be any irregularities, it may be that a lot of these new shiny Ltds are run by people who are way outside IR35, but just didn't want the hassle of doing all the leg work involved in running a company.

Nothing to do with IR35. All to do with people not doing the company admin thing nor taking any commercial risk or responsibility, and then expecting to receive the same taxation breaks as those that do.

[Lewis]

There may not be any irregularities, it may be that a lot of these new shiny Ltds are run by people who are way outside IR35, but just didn't want the hassle of doing all the leg work involved in running a company.