Umbrella or MSC - what's the difference?

[Bluebird]

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.

HMRC have stated that the MSC legislation is to ensure that "employment income" is taxed as such [ via PAYE ] - isn't that the same thing that IR35 was trying to do ?

I understand that many contractors on here disagreed with MSCs, but just because somebody got the LEGAL tax breaks by using an MSC because they didn't want the hassle of running the company didn't make it wrong.

And by the same token, just because you spend time doing all the "company" stuff that you do, won't stop an IR35 investigation saying "you are an employee so please pay all you back PAYE now, thank you".

[malvolio]

I give up, you're not listening.

One last time. If you don't want the 'hassle' of running a company - around 2 hours a month if you do it right and have a good accountant - why should you get a 20% reduction in your tax bill?

[Lewis]

I give up, you're not listening.

One last time. If you don't want the 'hassle' of running a company - around 2 hours a month if you do it right and have a good accountant - why should you get a 20% reduction in your tax bill?

It's simple. Take my case which I suspect is common ...

I have been contracting for 10 years. I used to run a Ltd company with an accountant for many many years and yes there was some 'hassle' associated with that. I was a one-man band with no intentions of expanding, I was outside IR35. My company was just a vehicle for me to work through.

I then discovered composites which paid the same, had no 'hassle' and IR35 insurance (for extra peace of mind) so I joined one and it was very hassle-free and very nice thank you very much. I didn't look back. My "Business" remained the same as did my IR35 status. I personally just got a little more time to enjoy myself and had a few less worries. Which is afterall what life is about!

Now I am back with a Ltd and going through the boredom of PAYE and VAT again. Which I am not happy about. I liked MSCs and think they were a good idea. A ltd company for most contractors is simply a vehicle through which to work and not an expanding business taking on new employees etc..

I have no problem with people joining the contrator "club" be it through an umbrella, MSC or Ltd.

[Rialto99]

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.

Lewis - this is good advice, thanks again. So to summarise our discussion today I think i've drawn the following conclusions:

1. MSC = 1 or more Contractors. Contractor(s) is/are Director and is/are Paid Dividends. Cannot claim expenses.
2. Umbrella = at least 2 Contractors. Contractors are not Director and do not receive Dividends although can claim expenses.
3. Who cares as HMRC (using IR35 and MSC Legislation) will only target Ltd Companies paying dividends post 6th April 07.

Goodnight!

R

[Bluebird]

I give up, you're not listening.

One last time. If you don't want the 'hassle' of running a company - around 2 hours a month if you do it right and have a good accountant - why should you get a 20% reduction in your tax bill?

Running a company does not give you a god given right to have a 20% deduction in your tax bill - if you think like that then you are a disguised employee.

My name is Gordon and I claim my 6 years of back taxes - thank you.

[malvolio]

What?

[Chugnut]

What?

I think Bluebird is suggesting that if you think that working via an MSC doesn't entitle you to a 20% reduction in your tax bill, why should just the 2 hours of admin of your own company entitle you to one?

All other things being equal of course.

That's how I read it.

[malvolio]

I know what he's saying, but that argument is totally backwards.

I'm saying that I take commercial risk and make decisions for my own company using professional advice on occasion and not asking anyone else to support me in that; as a result I see no reason not to have some kind of tax advantage from HMG since I am taking myself out of a large chunk of the social protection schemes for employees and potetnially contributing directly to the economy (in a very small way, I admit!)
That does not mean that paying someone to do all of that for you using a completely artificial company setup and isolating you from any kind of business decision making or risk entitles you to claim you are not an employee and so deserve the same tax advantage. Clearly, HMG agrees, which is where the MSCs went...

[timh]

A friend of mine is engaged in a bit of a battle with an end client who don't want to pay, via an agency, via Giant. He was an employee of a Giant MSC, and therefore apparently not exposed to risk - HOWEVER it seems that he was indeed bearing all the risk, and in fact Giant have told him that if it goes to court his contract with them says he's liable to cover all the legal costs etc.

Doesn't seem like employees of MSCs were exposed to any less risk/etc than directors of limited companies, to me!

[Bluebird]

I know what he's saying, but that argument is totally backwards.

I'm saying that I take commercial risk and make decisions for my own company using professional advice on occasion and not asking anyone else to support me in that; as a result I see no reason not to have some kind of tax advantage from HMG since I am taking myself out of a large chunk of the social protection schemes for employees and potetnially contributing directly to the economy (in a very small way, I admit!)
That does not mean that paying someone to do all of that for you using a completely artificial company setup and isolating you from any kind of business decision making or risk entitles you to claim you are not an employee and so deserve the same tax advantage. Clearly, HMG agrees, which is where the MSCs went...

What commercial decisions & risks would a normal run of the mill contractor take that a member of an MSC doesn't

I've done both and the only extra "risk" I take by using my own Ltd is the risk of getting things wrong and being subjected to penalties.

For the run-of-the-mill contractor [ which you may not be so it may not apply to you ], the decision of which contract to take, what rate to negotiate, when to walk away are the same regardless of whether you're Ltd or Msc.

I agree you point about HMG, but IR35 shows they are not alltogether happy with Contractors using Ltds either - the difference being that the IR35 legislation doesn't work as well.