Reply to: Accountants and the new MSC legislation

[Bradley]

Involved

"To be within the legislation (specifically section 61B(1)(d)) a person must both be carrying on a business of promoting or facilitating the use of companies to provide the services of individuals, and be involved with those companies. Involved is defined by reference to five criteria in section 61B(2)."

I would think that the word "involved" takes professional accountancy services out of the loop anyway because like you said before clients are free to take advice or not. Typical MSC providers railroad their "clients" down a particular road e.g. dividends and not salary.

[simondolan]

Simon - since you seem to have the ear of the Treasury what's their take on what the above two activities comprise of?

Does it include, for example, the promotion of PSCs (whatever they are) as a tax avoidance vehicle?

"To be within the legislation (specifically section 61B(1)(d)) a person must both be carrying on a business of promoting or facilitating the use of companies to provide the services of individuals, and be involved with those companies. Involved is defined by reference to five criteria in section 61B(2)."

"The legislation seeks to distinguish between an accountant in the business of being an accountant, providing accountancy services, and an MSC provider, in the buiness of being an MSC provider (who may have accountants on the payroll) who provides services beyond those recognised as accountancy services"

"It is not the intention that the MSC legislation catches accountancy services provided as part of an accountancy business"

I don't know what the exact final form of the legislation will take, but it is clear to me that genuine accountancy practices will not be caught up in it.

[Bradley]

Promoting or Facilitating

Simon - since you seem to have the ear of the Treasury what's their take on what the above two activities comprise of?

Does it include, for example, the promotion of PSCs (whatever they are) as a tax avoidance vehicle?

[simondolan]

Interesting quote, can you provide the source as I thought the Revenue were deliberately making it vague.

They are not making it deliberately vague - they haven't finalised the legislation yet - what they are trying to do is to make sure the ex MSC's are caught whilst exempting proper accountants providing normal accountancy services.

I am not going to mention names on a public forum, but I have spoken to the people drafting the legisation at the Treasury and the quote given was from one of them.

[grahams]

Not true.

Direct from the Treasury:

"An accountant running an accountancy practice, providing services recognised by the accountancy regulatory bodies, would not fulfil the dual criteria in section 61B(1)(d) and is therefore outside the legislation, even where a sizeable proportion of the client base are service companies."

Interesting quote, can you provide the source as I thought the Revenue were deliberately making it vague.

[Lewis]

Yes, they can, and no doubt will once the final legislation is in place.

That's great news. Any idea when that might be? I think I heard September or something for royal assent ??

[Bradley]

On message

Not true.

Direct from the Treasury:

"An accountant running an accountancy practice, providing services recognised by the accountancy regulatory bodies, would not fulfil the dual criteria in section 61B(1)(d) and is therefore outside the legislation, even where a sizeable proportion of the client base are service companies."

Hi Simon

I have to say that I wasn't really thinking about SJD as you are regulated by the tax institute. I was really thinking of those "accountancy" firms that are not regulated and who have a client base consisting 99.9% of PSCs a large majority of whom were MSCs in the past. As I understand it HMRC have already let it be known that that type of firm will be targetted.

I think what I am saying was correct but you have rather pounced upon it as a personal attack. It wasn't.

I also have to say that I think that in the future, accountancy firms, regulated or not, will run this risk if a large part of their business consists of services to PSCs. As I think has been discussed above I can't see the Treasury accepting the position where all who have been MSCs form PSCs and carry on with the help and support of specialised firms. If that is the case then they really haven't solved their "problem" and the next step is to outlaw any form of advice to PSCs.

The situation is, of course, farcical because as has already been said above every company formed as a PSC is as legit as every other company. Why should they not be able to access the services of firms of accountants who are able to act for a reasonable fee because of economies of scale. All of the "Big 4" accountancy firms wouldn't be able to provide this service at 5 times the cost!

The real answer is to force big business to employ people and pay accordingly but that would be political suicide for Gordon Brown.

[simondolan]

I don't know the answer to this, but are there actually any MSC providers still running as if nothing has happened? Surely nobody would be so foolish. Which begs the question are there any MSCs left to crack down on?! ).

Of course not, but there are ex MSC's now trying to rebadge as accountants whilst still trying to offer much the same service as they did before. Also, whilst most of the MSC's are now gone, if the Revenue don't legislate they would simply come back again.

What has happened to the revenue's targets ... 1000s of contractors previously in MSCs are now running their own Ltds, Carter Allan has an 800% increase in business bank account applications, accountants are scooping up all the ex-Giant and co. business. Ultimately the majority of ex-MSCs if not now will eventually be Ltds in my opinion. They might go umbrella for a while.

So what have HMRC gained apart from making our lives harder? They haven't got the taxes they want so they are still going to come after us ).

Whilst a massive amount of contractors are currently forming their own Companies, at least an equal amount are going to umbrellas, so the tax take will undoubtedly be massive

Can individual accoutants ask HMRC for written confirmation they are not affected by new legislation? (I doubt it).

Yes, they can, and no doubt will once the final legislation is in place.

[Lewis]

I have spoken with the Treasury and believe me, their intention and want is to crack down on MSC's - they will not target normal accountancy firms.

I don't know the answer to this, but are there actually any MSC providers still running as if nothing has happened? Surely nobody would be so foolish. Which begs the question are there any MSCs left to crack down on?!

What has happened to the revenue's targets ... 1000s of contractors previously in MSCs are now running their own Ltds, Carter Allan has an 800% increase in business bank account applications, accountants are scooping up all the ex-Giant and co. business. Ultimately the majority of ex-MSCs if not now will eventually be Ltds in my opinion. They might go umbrella for a while.

So what have HMRC gained apart from making our lives harder? They haven't got the taxes they want so they are still going to come after us ....

Can individual accoutants ask HMRC for written confirmation they are not affected by new legislation? (I doubt it).

[simondolan]

You've missed my point entirely.

I know full well there is no such thing legal definition of a PSC - however the Treasury statement doesn't use the term PSC they use the term 'service company' only which could mean something else entirely (in their own mind).

Yet, SD has assumed that the Treasury's interpretation of SC's is the same as PSC's. Is it?

In law this may be irrelevant, but the IR are the ones calling the tune as to who falls under this spotlight and do contractors need the hassle of being witht he wrong kind of accountant who may tar everyone to the same brush and start sending out PAYE demands on all income - irrespective of whether they fall outside iR35 or not?

Clear now?

The quote from the Treasury is exactly that - a quote. It is not legislation, hence the "service company" and not "personal service company". Even if you wanted to argue there was a distinction (which there isn't), a "service company" would be one providing services and therefore applies equally to one man companies.

All the major accountancy bodies are liaising with the Treasury to help define this so "proper" accountants will not be caught. I have spoken with the Treasury and believe me, their intention and want is to crack down on MSC's - they will not target normal accountancy firms.

[malvolio]

I understand the point but do not agree with it. You cannot classify CompanyA as an MSC because the bulk of their clients are small companies typically serving a defined market, and nor can HMRC who still have to pay some lip service to the law.

Equally you cannot easily define MyCo as a Service Company - which again has no legal definiton - and then argue that my suppliers are MSCs and therefore my taxation position is changed as a result.

Certainly you cannot change SJD from being an accountancy firm to being an MSC purely because a real-but-defunct MSC has decided to call itself an Accountancy firm so as to try and retain the client list it has just lost, which is the position you are actually trying to support.

Personally, I'm not losing sleep over it, and nor should anyone else - well, apart from Giant of course...

[malvolio]

Find a definition of a PSC outside Gay Gordon's febrile imagination and you may have a point. You won't and you haven't.

The term "PSC" is a political soundbite, not a legal identity. MyCo is every bit as legal an institution as Tesco.

[simondolan]

Accountancy firms who have a large number of contractor clients will always run the risk of being deemed a "MSC Provider" by HMRC.

Not true.

Direct from the Treasury:

"An accountant running an accountancy practice, providing services recognised by the accountancy regulatory bodies, would not fulfil the dual criteria in section 61B(1)(d) and is therefore outside the legislation, even where a sizeable proportion of the client base are service companies."

[Bradley]

Mistaken

There are four specific test and a pile of sub-clauses that have to be met if a company is to be classed as an MSC. Accountancy firms of any kind will not meet all four. Hence accountancy firms are not MSCs. Apart from which they have a specific exclusion from the scope of the new rules.

Quick sanity test - who signs the cheques and who decides (not calculates, decides) what amount they should be for?

The draft legislation on the Lawspeed website says that a company is an MSC if a MSC provider is associated with it. I don't think that there was any suggestion that accountancy firms were going to be MSCs and as such the MSC tests you talk about do not apply to them. What is important is that your accountant does not promote or facilitate the running of PSCs. Accountancy firms who have a large number of contractor clients will always run the risk of being deemed a "MSC Provider" by HMRC.

[Lewis]

There are four specific test and a pile of sub-clauses that have to be met if a company is to be classed as an MSC. Accountancy firms of any kind will not meet all four. Hence accountancy firms are not MSCs. Apart from which they have a specific exclusion from the scope of the new rules.

Quick sanity test - who signs the cheques and who decides (not calculates, decides) what amount they should be for?

I thought they were OR clauses not ANDs for the MSC Providers. But even so by far the most positive thing I have read since the new legislation is Simons post http://forums.contractoruk.com/thread17042.html where HMRC seem to be clearly saying don't worry about accountants. That was good to read.