Budget - Composite Companies Dead!

[wendigo100]

No need to worry - I've read through the whole 72 page document about this and the implementation will take place from 6th April 2007. There is no suggestion of any backdating.

But I thought that this was based on Gordon's 2004 regulation that all potential tax-avoidance arrangements must now be "approved" by HMRC?

I understood this, hopefully wrongly, to be the rejection of MSCs under that regulation, which means that MSCs started being non-compliant in 2004.

[simondolan]

But I thought that this was based on Gordon's 2004 regulation that all potential tax-avoidance arrangements must now be "approved" by HMRC?

I understood this, hopefully wrongly, to be the rejection of MSCs under that regulation, which means that MSCs started being non-compliant in 2004.

No, these MSC's could not be considered tax avoidance for the purposes of disclosure. This is new legislation which will be on the statute in time for 6th April 2007, it does not use existing legislation to clamp down, so there won't be any backdating issues.

There can really only be one piece of valid advice and that is to form your own Ltd Co, or if low paid/short term, or you simply don't want any admin go Umbrella.

[MobileCheese]

[QUOTE=simonsjdaccountancy]No, these MSC's could not be considered tax avoidance for the purposes of disclosure. This is new legislation which will be on the statute in time for 6th April 2007, it does not use existing legislation to clamp down, so there won't be any backdating issues.
QUOTE]

I pray and hope that your right



Dear Santa,

For xmas this year I would like not to have to back date the NICs and TAX I owe for using an MSC.

Thanks
Mr Cheese

[Cowboy Bob]

This is new legislation which will be on the statute in time for 6th April 2007, it does not use existing legislation to clamp down, so there won't be any backdating issues.

So what did the chancellor mean when he said this?

The Government will also address the problem of MSCs escaping payment of tax and NICs due by allowing the recovery of these debts from appropriate third parties.

[donaldduke]

So what did the chancellor mean when he said this?

The Government will also address the problem of MSCs escaping payment of tax and NICs due by allowing the recovery of these debts from appropriate third parties.

This seems it apply to MSCs going forward, if an MSC does not use PAYE for its contractors and then shutdowns the IR can now go after the contractors.

According to the document they are not (easily) able to do this at present.

[Bagpuss]

So to sum up, I was right that those under umbrella companies also lose out.

Many Thanks
Bagpuss

[simondolan]

So what did the chancellor mean when he said this?

The Government will also address the problem of MSCs escaping payment of tax and NICs due by allowing the recovery of these debts from appropriate third parties.

What he wants to address is the fact that at the moment it is very difficult to come after the composite for PAYE/underpaid tax - they have no assets so nothing to go after.

Post 5th April 2007 when this new legislation hits they want to make sure that even if composites still trade they cannot avoid the whole tax/NI hit by claiming no assets - the Revenue will just go after the Contractor instead.

[simondolan]

So to sum up, I was right that those under umbrella companies also lose out.

Many Thanks
Bagpuss

Only to the extent that contractors will no longer be able to claim the high level of expenses currently promoted and encouraged by certain unethical Companies.

[hattra]

Only to the extent that contractors will no longer be able to claim the high level of expenses currently promoted and encouraged by certain unethical Companies.

What do you consider a "high level".

When I was back in permieland, I used to be able to claim an un-receipted daily allowance when travelling on company business, to cover "incidentals", that was actually more (in real terms) than I claim now - I think it's still quite common practice - are permanent staff going to have to pay tax on that now.

[IR35 Avoider]

Third party = the contractor (if I understand that correctly)

Post 5th April 2007 when this new legislation hits they want to make sure that even if composites still trade they cannot avoid the whole tax/NI hit by claiming no assets - the Revenue will just go after the Contractor instead.

I read the consultation document last night, and I'm pretty confident that "third party" means the accountants running the composites, and perhaps (but only in extreme circumstances, and depending on what comes out of the consultation) the agency or the client.

Having said that, what they are planning should mean they will in future be able to come after contractors more easily.

Up to now, if you receive non-PAYE money from your employer, such as dividends from a composite, and HMRC determine this should have been PAYE (because of IR35 or previous legislation) they can only come after the contractor if they can prove he wilfully colluded with the employer, or if the wrong payment was an error in good faith by the employer. (I presume these rules are meant to protect employees from unscrupulous employers who fail to deduct the right amount of PAYE, leaving the employee to pick up the bill later.) In the consultation document they (effectively) point out that even when someone is an IR35-failure but getting dividends, then even though the IR35 legislation says the contractor is liable for the tax and employees NI, just as any employee who receives pay without correct deductions would be, they can't necessarily go after him.

In future, with this legislation, any employee will know that all income from a company they don't control must be subject to PAYE, so the "I didn't understand the evil employer was ripping me off" defense won't work any more. Having said that, it is just my own deduction that it will now be easier to go after contractors - I don't think there is any suggestion in the document that this is explicitly on their agenda. It is the accountants, then agencies, then clients that are in their sights. (I think there is a an implicit attitude that mere employees can't be expected to understand complicated things like tax.)