HMRC guidlines on ex MSC's

[Lewis]

I think that what they're saying above is that any accountant that specialises in contractor clients is an MSC provider.

It's strange because they say this ...

The following are not an MSC Provider by virtue of the activity described:
�� A firm of accountants carrying on a business of being accountants (irrespective of the percentage of the client base which is individuals operating through service companies)

Which would make me think that you're wrong, but then they say

To be an MSC Provider a person must be carrying on a business of promoting or facilitating the use of companies to provide the services of individuals.

Look at page 8 and "facilitating" is defined as "helping, making easier, enabling etc..". Now I think you're right because surely any contractor accountant is carrying on the business of helping us to run Ltd companies, making it easier for us to run Ltd companies etc..

[Ardesco]

I think if enough contractors force their "accountants" to demand it of the Revenue then, yes. I also think that most accountants and agencies will want this so that they can avoid paying someone else's PAYE liability.

Do you honestly think that accountants have not been demanding to know what constitutes inside and outside IR35 since that legislation was put in place?? Do you honestly belive that the IR cares if people understand the rules or not??

All IR care about is taking money from you to pay for all the things the government want to do, if they can make things unclear and throw about lots of FUD to make people just pay up when they demand money from them it makes thier job much easier. Even when they are wrong they don't like to accept it and move on (Arctic Systems anybody....)

[Lewis]

This is interesting, from an expert on Shout99

HMRC have confirmed that companies marketing limited companies to contractors are MSC Providers. This is simply a term used to identify someone supplying specialist services to contractors, and DOES NOT mean that the contractors limited companies are therefore MSC's.

Contractors have to be sure that the provider is not involved in their business. The tests (page 11) are crucial. In simple terms if the service feels like a "packaged" take it or leave it offering, with no ability to personalise or vary then I would suggest it maybe a little risky.

http://www.shout99.com/contractors/s...local=Threaded

[Bradley]

MSC Provider

I think its pretty clear from all of that that the Revenue consider most if not all of the specialist to the contractor market accountants to be MSC providers. I think that this is the point that Giant were making.

The risk to contractors is that the Revenue will try to argue that they are involved with the contractor in some subtle or not so subtle way - my point above re the fees question refers here - and suddenly a massive PAYE bill lands on your doorstep.

[exbrm]

Remember the basics .......

Let's not forget the principle HMRC argument:

When does the legislation take effect?
It will take effect from 6 April 2007 for tax, and is expected to take effect from 6 August 2007 for NICs. The transfer of debt provisions will initially take effect from 6 August 2007 for MSC scheme providers and directors of MSCs. Other third parties may be liable for debts from 6 January 2008.

Who is affected?
Primarily individuals who provide their services through Managed Service Companies, since the legislation concerns the taxation of income received by such persons.

But the legislation also affects persons who make Managed Service Companies available (MSC Providers) and under certain circumstances other third parties involved with MSCs.

Where a Managed Service Company is unable to pay its PAYE and NIC liability, its debt might be transferred to a third party including initially MSCs’ directors and the MSC Provider.

Who is not affected?
Individuals working through Personal Service Companies (PSC) that are not within the new definition of a MSC.

Individuals working through Umbrella Companies.

What is a Managed Service Company (MSC)?
An MSC is a form of intermediary company through which workers provide their services to end clients. The definition of an MSC in the legislation encompasses both ‘composites’ and ‘managed personal service companies’.

In essence a scheme provider promotes the use of these companies and provides the structure to workers. The worker (although a shareholder) does not exercise control over the company.

What does the legislation do?
It deems all payments received by a worker working through a MSC to be employment income.

This means that PAYE (and, it is expected, from 6 August 2007, Class 1 National Insurance contributions) must be applied to all income received by individuals in MSCs in relation to their services provided through the MSC.

The legislation applies whatever the form through which the worker receives their remuneration.

Where an MSC is unable to pay its PAYE and NIC liability, its debt can be transferred to a third party. These include the company’s director, the MSC Provider, and in certain circumstances, other third parties.

MSC providers
In response to the legislation published at Budget, a number of providers are telling their clients that they (the providers) are not MSC providers, rather that they are accountants. They are therefore telling clients that their companies are not caught by the legislation.

Based on the advertising material seen, it is HMRC’s view that many of these organisations are MSC providers as defined in the new legislation. Whether or not the new tax rules apply will depend on the precise relationship between the MSC provider and the client company.

Individuals operating through service companies, particularly those who believe that prior to 6 April they would have been within “IR35”, should consider carefully their and their company’s relationship with the MSC provider. If a service company is within the legislation and the company fails to operate PAYE, this could result in individuals being held personally liable for the PAYE debts of the company.

[Bradley]

Clarification

What is a Managed Service Company (MSC)?
An MSC is a form of intermediary company through which workers provide their services to end clients. The definition of an MSC in the legislation encompasses both ‘composites’ and ‘managed personal service companies’.

In essence a scheme provider promotes the use of these companies and provides the structure to workers. The worker (although a shareholder) does not exercise control over the company.

A company is an MSC if:
- its income is from providing personal services
- most of that income is then paid out to the individual providing those services
- if PAYE was applied to the turnover more tax would be payable
- the company is involved with an MSC provider

MSC providers
In response to the legislation published at Budget, a number of providers are telling their clients that they (the providers) are not MSC providers, rather that they are accountants. They are therefore telling clients that their companies are not caught by the legislation.

HMRC consider all companies that specialise in marketing & providing services to contractors even those who weren't providing MSCs previously are MSC providers - its not just the filetravels of this world that we are talking about.

[Lewis]

HMRC consider all companies that specialise in marketing & providing services to contractors even those who weren't providing MSCs previously are MSC providers - its not just the filetravels of this world that we are talking about.

I wish we could get some official clarification on this all the accountants here seem pretty convinced they are ok from previous posts.

I guess the only way at this point to be 100% safe is to ensure you are definitely not "involved" with your accountant, whoever that is. Which would seem to involve staying away for any standard-contractor-package as well as retaining complete control over every decision. The document even says your understanding could play a part

In determining who is exercising true control , HMRC will look beyond structural arrangements and documentation and consider all factors indicative of true control, including the level of understanding of all relevant parties in the arrangements which they are said to control.

- are they going to start introducing a basic accounting exam that we must pass!

Maybe do your own PAYE or VAT or something to distinguish you from the rest - just a guess, I'm as confused as everyone else.

[simondolan]

Really not the clearest legislation I've ever seen, however these parts are pretty clear cut:

"The legislation provides a specific exemption for persons being MSC Providers (involved with a company) merely by virtue of providing legal or accountant services in a professional capacity. This specific exemption applies only to persons professionally qualified (or training for a professional qualification) regulated by a regulatory body. "

"But simply because a person is not exempt merely by virtue of providing legal or accountancy services in a professional capacity, does not mean that they are an MSC Provider. Persons who promote or facilitate companies generally, as opposed to companies specifically to provide the services of individuals, are not MSC Providers....."

"The following are not an MSC Provider by virtue of the activity described:

A firm of accountants carrying on a business of being accountants (irrespective of the percentage of the client base which is individuals operating through service companies) "

Further, to be labelled an "MSC" the provider would have to be "involved" with the Company, so exerting influence and control - from the legislation:

"In this context “influences” does not mean the provision of advice. HMRC differentiates between a person who provides independent, tailored advice to a client, who is then able to consider that advice before accepting it or rejecting it, and the person who simply supplies a client with a standard solution or product that the client accepts"

In short - a proper firm of accountants that simply provide tax and accountancy services, who's fee is not related to the income generated by the client, and who's advice can be taken or ignored, will be OUTSIDE of the legislation.

I wish we could get some official clarification on this all the accountants here seem pretty convinced they are ok from previous posts.

I guess the only way at this point to be 100% safe is to ensure you are definitely not "involved" with your accountant, whoever that is. Which would seem to involve staying away for any standard-contractor-package as well as retaining complete control over every decision. The document even says your understanding could play a part



- are they going to start introducing a basic accounting exam that we must pass!

Maybe do your own PAYE or VAT or something to distinguish you from the rest - just a guess, I'm as confused as everyone else.

[Bradley]

Clear Cut?

We also know the following from page 9 of the guidance

The following are an MSC Provider

• A Service Provider carrying on a business specifically of marketing and/or providing corporate solutions and services to individuals providing their services to end clients

• A firm of accountants carrying on a discernable part of their business specifically to market and/or provide corporate solutions and services to individuals providing their services to end clients. (In this case the firm would only be an MSC Provider in respect of that discernable part of the business.)

• A business which terms itself a Tax Adviser, Service Provider or whatever but which specifically markets and/or markets corporate solutions and services to individuals providing their services to end clients

Simon - you said previously that the Revenue would allow accountants to apply for some form of clearance so that they could show that they were not MSC providers. Is this facility actually going to be available?

[Lewis]

In short - a proper firm of accountants that simply provide tax and accountancy services, who's fee is not related to the income generated by the client, and who's advice can be taken or ignored, will be OUTSIDE of the legislation.

What is your take on this? ...

The following are an MSC Provider
�� A firm of accountants carrying on a discernable part of their business specifically to market and/or provide corporate solutions and services to individuals providing their services to end clients.

There is no definition of a "corporate solution" anywhere. Would they try and claim that setting up a Ltd co. and doing everything to run it smoothly for a contractor that knows little about companies is a "corporate solution"? I could see some weight in that argument.

Also back to my original question. What differentiates an ex-MSC which is now providing accountancy services (and is qualified) from a true contractor-accountant. I can see nothing that would catch an ex-MSC that couldn't also be applied to other contractor-accountants. Can you?

I assume the quote above is the one to catch the ex-MSCs but without a definition for "corporate solution" it's not very helpful!