Hi People,
If you unclear of what the MSC legislation is all about and whether it applies to you, I have simplified a 48 page report with all the relevant information that you should consider. I hope it helps.
New Rules for Managed Service Companies
You may be aware that contractors are now subject to new legal obligations as a result of the Government’s revised Managed Service Company Legislation (MSCL).
This guide aims to give you all the relevant information about MSCL and some practical solutions for you.
What are the new rules?
The new rules say that all payments received through a Managed Service Company are employment income. This means that all income received for services provided through MSCs is now subject to PAYE. From 6 August 2007, such income will also be subject to Class 1 National Insurance Contributions.
The legislation applies to all individuals working through MSCs, regardless of how they receive 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.
Does the legislation apply to You?
The legislation does apply to:
• People who provide their services through a Managed Service Company.
The legislation does not apply to:
• People who provide their services through a Personal Service Company (PSC).
Not all workers who provide their services via intermediaries will be forced into direct employment. These rules simply mean that workers in MSCs have to pay different levels of tax and NICs.
Provided your company is not an MSC as defined in the legislation, the new rules will not apply. If your client is in business on their own account and controls their company’s finances, they will not be an MSC. However, should you be in any doubt, you should check with a financial advisor or whoever set up your company.
How will changes affect clients of Accountancy Practices and the companies which provide MSC services?
Here is a direct quotation from section 2.3 of the MSC Guidance document issued by HMRC July 2007.
“HMRC is aware that there is a market for specialist service providers providing corporate solutions to workers genuinely in business on their own account. Whilst such specialist providers may be MSC Providers, it is important to remember that a key issue is whether the services provided constitute being INVOLVED with the client company.
From the above, we can see that kkey to the legislation is the existence of an MSC service provider INVOLVED with a client Company (your company). For the MSC legislation to apply the service provider must both fulfill the definition of an MSC Provider AND be involved with their client companies.
Involved is defined in legislation by reference to any one of five activities
1. Benefiting financially on an ongoing basis from the provision of the services of the individual – An example would be receiving a percentage fee of the contractor’s income.
2. Influencing or controlling the provision of the services of the worker – This could include dispute resolution, or ensuring the contractors’ attendance at a given workplace.
3. Influencing or controlling the way in which payments to the worker or associate are made. - Only the company’s officers should determine how the company distributes its profits.
4. Influencing or controlling the company’s finances or any of its activities. -A company’s officers should determine how the company and its finances are administered
5. Giving or promoting an undertaking to make good any tax loss – for example IR35 insurance
If the MSC provider is involved in any one of these five activities then the new legislation will most likely apply.
How can you stay compliant?
If you operate through an MSC, the company must pay tax and national insurance on the “deemed employment income”.
If you operate through a PSC, the contractor must accept responsibility for the company including all business decisions, and ensure that any accountant they use acts in a Professional Capacity. Attributes of a compliant accountancy service provider for a PSC may be:
• They are operating as a normal accountancy practice, which is governed by an Institute.
• They are not promoting any schemes to make good tax losses.
• The fees charged by the accountancy practice are not a percentage of income, but are the agreed normal fee for accountancy and taxation services.
• The bank account of the PSC is portable and controlled by the Director of the Company.
• The PSC is controlled and managed by the Director of the Company.
Hope this is a help.
DB3
If you unclear of what the MSC legislation is all about and whether it applies to you, I have simplified a 48 page report with all the relevant information that you should consider. I hope it helps.
New Rules for Managed Service Companies
You may be aware that contractors are now subject to new legal obligations as a result of the Government’s revised Managed Service Company Legislation (MSCL).
This guide aims to give you all the relevant information about MSCL and some practical solutions for you.
What are the new rules?
The new rules say that all payments received through a Managed Service Company are employment income. This means that all income received for services provided through MSCs is now subject to PAYE. From 6 August 2007, such income will also be subject to Class 1 National Insurance Contributions.
The legislation applies to all individuals working through MSCs, regardless of how they receive 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.
Does the legislation apply to You?
The legislation does apply to:
• People who provide their services through a Managed Service Company.
The legislation does not apply to:
• People who provide their services through a Personal Service Company (PSC).
Not all workers who provide their services via intermediaries will be forced into direct employment. These rules simply mean that workers in MSCs have to pay different levels of tax and NICs.
Provided your company is not an MSC as defined in the legislation, the new rules will not apply. If your client is in business on their own account and controls their company’s finances, they will not be an MSC. However, should you be in any doubt, you should check with a financial advisor or whoever set up your company.
How will changes affect clients of Accountancy Practices and the companies which provide MSC services?
Here is a direct quotation from section 2.3 of the MSC Guidance document issued by HMRC July 2007.
“HMRC is aware that there is a market for specialist service providers providing corporate solutions to workers genuinely in business on their own account. Whilst such specialist providers may be MSC Providers, it is important to remember that a key issue is whether the services provided constitute being INVOLVED with the client company.
From the above, we can see that kkey to the legislation is the existence of an MSC service provider INVOLVED with a client Company (your company). For the MSC legislation to apply the service provider must both fulfill the definition of an MSC Provider AND be involved with their client companies.
Involved is defined in legislation by reference to any one of five activities
1. Benefiting financially on an ongoing basis from the provision of the services of the individual – An example would be receiving a percentage fee of the contractor’s income.
2. Influencing or controlling the provision of the services of the worker – This could include dispute resolution, or ensuring the contractors’ attendance at a given workplace.
3. Influencing or controlling the way in which payments to the worker or associate are made. - Only the company’s officers should determine how the company distributes its profits.
4. Influencing or controlling the company’s finances or any of its activities. -A company’s officers should determine how the company and its finances are administered
5. Giving or promoting an undertaking to make good any tax loss – for example IR35 insurance
If the MSC provider is involved in any one of these five activities then the new legislation will most likely apply.
How can you stay compliant?
If you operate through an MSC, the company must pay tax and national insurance on the “deemed employment income”.
If you operate through a PSC, the contractor must accept responsibility for the company including all business decisions, and ensure that any accountant they use acts in a Professional Capacity. Attributes of a compliant accountancy service provider for a PSC may be:
• They are operating as a normal accountancy practice, which is governed by an Institute.
• They are not promoting any schemes to make good tax losses.
• The fees charged by the accountancy practice are not a percentage of income, but are the agreed normal fee for accountancy and taxation services.
• The bank account of the PSC is portable and controlled by the Director of the Company.
• The PSC is controlled and managed by the Director of the Company.
Hope this is a help.
DB3
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