Reply to: MSC Solution

[malvolio]

This was the bit I was really worried about and you've confirmed my concerns. Thnks

Just being brutally honest, as usual. Glad to have helped a bit.

Now, since you need a new company clear of any MSC involvements, have you looked at PCG One-Stop yet?

http://www.pcg.org.uk/cms/index.php?...320&Itemid=648


OK, OK, I know, but this time I think it may be justified...

[cojak]

Ok, I obviously don't have a clue what I'm talking about so I am going to duck out of this debate!

No - you had a very valid point Lewis: how on earth are they going pay him until August??

[Tinker]

Why are you even considering staying with an MSC? Even if the point 3 argument is correct (and I can't see that it is, and even so they may simply backdate the NIC you've avoided at that point), has it occurred to you that by staying with an MSC you personally will stand a very good chance of getting investigated for PAYE compliance and any tax you have not paid will be reclaimed - and just to make it really interesting, that can be backdated 6 years if they decide that all your MSC earnings should actually have been taxed as income, which they probably will.

This was the bit I was really worried about and you've confirmed my concerns. Thnks

[Tinker]

Thanks - it's not that hard to understand if everybody says the same thing, but I've asked numerous providers the same question all giving me slightly different answers which is why I came to this board.

Thankyou for you clear response.

[malvolio]

Why are you even considering staying with an MSC? Even if the point 3 argument is correct (and I can't see that it is, and even so they may simply backdate the NIC you've avoided at that point), has it occurred to you that by staying with an MSC you personally will stand a very good chance of getting investigated for PAYE compliance and any tax you have not paid will be reclaimed - and just to make it really interesting, that can be backdated 6 years if they decide that all your MSC earnings should actually have been taxed as income, which they probably will.

MSCs are dead, so get out of them now. Either get your own Ltd and stand on your own two feet, or go umbrella if you can't manage. You can no longer get business-level taxation if you are not a business, it's not that hard to understamd.

[Tinker]

This is my first post. Hello!

I've found this on the contractoruk website itself...

The government has said it will defer the ‘third party’ debt transfer rules. Key facts below:

1)From 6 April 2007 all payments received by individuals providing their services through Managed Service Companies (MSCs) will be subject to PAYE;
2)From the same date the cost of travel from the individual’s home to the individual’s place of work is not an allowable tax-free expense for workers within MSCs;
3)It is planned that from 6 August 2007 National Insurance Contributions will also be due on all payments received by individuals working through MSCs;
4)Also from August, where the PAYE and NICs debts of an MSC cannot be recovered from the company, HMRC may transfer the debt personally to:
- The company’s director; or
- The MSC Provider
- Debts may be transferred to other third parties from 6 January 2008.

Are MSC companies assuming that point 3) above means that they don't have to start paying NI until August 6th???
Sounds a bit strange to me.

Hi fellow first timer - thanks for this. Think you've hit the nail on head with Point 3.

This is what my provider is saying: I am remaining an MSC and as such from now on all income that was previously classed as dividend income will be subject to PAYE, but not NI yet.
As of August NI will also be payable.

To be clear here, when I say "income that was previously classed as dividend income" I'm not talking about last tax year's income, I'm talking about income that I receive from now on that my provider would have classed as dividend income if it had not been for the new legislation.

The options (apart from my own limited company):
1) If I remain an MSC I don't have to pay NI until August, but I can't submit expenses.
2) If I went umbrella I would have to pay NI but I can submit expenses.


They state that the former option will give me the best net pay as my expenses aren't massive.

What I was hoping to clear up was:
a) the legality of this and
b) by remaining in 'MSC' land, eventhought I'm now paying PAYE, by not paying NI yet (as that will imply that I repviously received dividends) am I opening myself up for IR35 inspection on income that I've earnt over the past 2.5 years?

Thanks all

[Lewis]

3)It is planned that from 6 August 2007 National Insurance Contributions will also be due on all payments received by individuals working through MSCs;

Ok, I obviously don't have a clue what I'm talking about so I am going to duck out of this debate!

[Anderson]

This is my first post. Hello!

I've found this on the contractoruk website itself...

The government has said it will defer the ‘third party’ debt transfer rules. Key facts below:

1)From 6 April 2007 all payments received by individuals providing their services through Managed Service Companies (MSCs) will be subject to PAYE;
2)From the same date the cost of travel from the individual’s home to the individual’s place of work is not an allowable tax-free expense for workers within MSCs;
3)It is planned that from 6 August 2007 National Insurance Contributions will also be due on all payments received by individuals working through MSCs;
4)Also from August, where the PAYE and NICs debts of an MSC cannot be recovered from the company, HMRC may transfer the debt personally to:
- The company’s director; or
- The MSC Provider
- Debts may be transferred to other third parties from 6 January 2008.

Are MSC companies assuming that point 3) above means that they don't have to start paying NI until August 6th???
Sounds a bit strange to me.

[Lewis]

however they are incorrect to suggest that NI can then be applied retrospectively

I'm not talking about applying retrospective NI. Ask them how they will pay you from now until August. They will probably say either:
(A) PAYE and Dividends as before - they can't do this as they are an MSC.
(B) All PAYE - in which case you will pay NI now.

They can't just keep paying you dividends until August! Or to put it another way you should be very concerned if they suggest this! With respect, you seem to have a complete lack of understanding about National Insurance and the new MSC legislation. I would do some reading online if I was you as ultimately it's you who the revenue will come and investigate so you have to feel sure you know what you are doing and why. There lots of threads here and on Shout99 about the new MSC legislation. As for National Insurance just Google it.

This is also a good link posted by Bluebird that might answer some of your questions http://www.pcg.org.uk/cms/images/st..._affect_you.pdf

[Bigbird]

I may be wrong but I think they have freely admitted that they are an MSC?

Therefore the MSC legislation applies and all of your income paid via them is treated under the MSC rules.

BUT, in the same way as IR35 is not standard PAYE (in that you can pay yourself a low salary, claim your relevant expenses, knock off your 5% and THEN calculate PAYE/NIC on any balance) neither are the MSC rules.

I think..........

[Bluebird]

Thanks All for your information. They are fairly adamant that they are right:

"The people you spoke to are correct that the National Insurance Regulation needs Royal Ascent which will happen in August; however they are incorrect to suggest that NI can then be applied retrospectively from April 6th onwards. It simply can’t be done, hence why we are processing payments like previously stated until this date."

and

"The net income from an MSC will be higher than umbrella due to NI not being payable until August."

tempted to give in and go umbrella..

ask them how they intend to pay you between NOW and AUGUST - if this via dividends ask them how they are NOT an MSC ?

[Tinker]

What they are saying makes no sense at all to me. If they pay your income as PAYE then you must pay NI on that income immediately (as every employee must). The only way to avoid NI is to get the income paid as dividends as you did before, but as of 6th April you can no longer do that via an MSC. So basically, if you stick with them you should take your income as PAYE and not declare any dividends (and in which case that is the same as if your were caught by IR35). I would ignore all this stuff about August.

Thanks All for your information. They are fairly adamant that they are right:

"The people you spoke to are correct that the National Insurance Regulation needs Royal Ascent which will happen in August; however they are incorrect to suggest that NI can then be applied retrospectively from April 6th onwards. It simply can’t be done, hence why we are processing payments like previously stated until this date."

and

"The net income from an MSC will be higher than umbrella due to NI not being payable until August."

tempted to give in and go umbrella..

[Lewis]

The company I'm with are going to start treating my income as PAYE, previously it was dividend income.
However they are saying that I don't need to start paying NI until August.

What they are saying makes no sense at all to me. If they pay your income as PAYE then you must pay NI on that income immediately (as every employee must). The only way to avoid NI is to get the income paid as dividends as you did before, but as of 6th April you can no longer do that via an MSC. So basically, if you stick with them you should take your income as PAYE and not declare any dividends (and in which case that is the same as if your were caught by IR35). I would ignore all this stuff about August.

[Bluebird]

I thought PAYE was Income tax & NI ????


If you have, say £5000 how can they apply Income Tax to the £5k but Ni to only minimum wage element of that ?

Aren't you either PAYE or Not, and if you are then that includes NI ???

I'm sure I'm missing something [ a brain perhaps ?]

[Tinker]

Whoever you join ... you do not need to pay NI on income you already received as dividend, however hector can come after you and ask you on what grounds did you take dividend and not PAYE.

Since you are going to be PAYE you will off IR35 HENCEFORTH.

The company I'm with are going to start treating my income as PAYE, previously it was dividend income.
However they are saying that I don't need to start paying NI until August.
They are basically saying that, due to the new legislation, my MSC income will be taxed as PAYE income with immediate efffect but the additional NI deductions, that are also going to be applied to MSCs, will only start from August onwards.

I asked whether in August, NI would be retrospectively from April 6th onwards and they said 'no' only income after August will have the additional NI payable...