High Take Home Pay Schemes - a warning

[LisaContractorUmbrella]

HMR&C have announced that they have expanded their definition of a Managed Service Company; their position is that intermediaries providing payment services to contractors should do so via PAYE and not any other means. They have declared "Where HMRC challenges successfully a company as being within the Managed Service Company legislation and that company is unable to pay the resultant PAYE and National Insurance debt, HMRC will invoke the transfer of debt provisions".

If the debt transfer provision is invoked it can be applied to any or all parties involved which means that any contractors using a scheme that HMR&C could consider to be an MSC are likely to be extremely unpopular with agencies and clients alike

[geoff from contracta IOM]

HMR&C have announced that they have expanded their definition of a Managed Service Company; their position is that intermediaries providing payment services to contractors should do so via PAYE and not any other means. They have declared "Where HMRC challenges successfully a company as being within the Managed Service Company legislation and that company is unable to pay the resultant PAYE and National Insurance debt, HMRC will invoke the transfer of debt provisions".

If the debt transfer provision is invoked it can be applied to any or all parties involved which means that any contractors using a scheme that HMR&C could consider to be an MSC are likely to be extremely unpopular with agencies and clients alike

Will the fact that many of the Service Providers are overseas increase the risk that HMRC will look to employment businesses, as the parties with greater assets, to transfer debts?

No. Employment businesses should bear in mind that HMRC will only consider transferring debts to an employment business both if debts are irrecoverable from Service Provider or workers, and there is evidence that the employment business was actively involved in the provision of the workers' services through an MSC.

[LisaContractorUmbrella]

Will the fact that many of the Service Providers are overseas increase the risk that HMRC will look to employment businesses, as the parties with greater assets, to transfer debts?

No. Employment businesses should bear in mind that HMRC will only consider transferring debts to an employment business both if debts are irrecoverable from Service Provider or workers, and there is evidence that the employment business was actively involved in the provision of the workers' services through an MSC.

From HMR&C website:

"It should be noted that simply because an intermediary is based outside the UK does not mean the Managed Service Company legislation does not apply. Those providing their services though companies based outside the UK should not assume that this fact alone exempts their company from the legislation and them from the consequences of non-compliance. If the provider and their associates are based outside of the UK tax jurisdiction, then the persons most at risk are individual workers based in the UK."

[geoff from contracta IOM]

From HMR&C website:

"It should be noted that simply because an intermediary is based outside the UK does not mean the Managed Service Company legislation does not apply. Those providing their services though companies based outside the UK should not assume that this fact alone exempts their company from the legislation and them from the consequences of non-compliance. If the provider and their associates are based outside of the UK tax jurisdiction, then the persons most at risk are individual workers based in the UK."

We could quote HMRC rhetoric at each other forever, what can't be obscured by HMRC is the applicable tax laws on which our learned colleagues base their opinions much as they love to try.

[LisaContractorUmbrella]

We could quote HMRC rhetoric at each other forever, what can't be obscured by HMRC is the applicable tax laws on which our learned colleagues base their opinions much as they love to try.

Oh I don't know it hasn't stopped them in the past

HMR&C seem to be getting wise to the fact that woolly legislation causes loopholes; in this case I think they have clarified their position completely and, as we both know, if they disagree with your learned colleagues it will be the contractor who loses out

[geoff from contracta IOM]

Oh I don't know it hasn't stopped them in the past

HMR&C seem to be getting wise to the fact that woolly legislation causes loopholes; in this case I think they have clarified their position completely and, as we both know, if they disagree with your learned colleagues it will be the contractor who loses out

If HMRC disagreed with the interpretation of the leglislation why not challenge it ? Why don't all the umbrella companies with a vested financial interest club together and obtain an opinion of their own to use as a marketing tool ( against the like of my company ) if it would in fact contradict the other numerous QC's opinions ? HMRC are not challenging it or they wouldn't have released yet another document to consult on putting yet another sticking plaster piece of leglislation into statute ( delivery expected possibly Mid 2012 ) . I understand the reservations some contractors might have about using these schemes but most of it is based on posters to this forum doing HMRC's job for them. If someone can point out to me where our barrister is wrong i'm sure both him and I would be delighted to know, along with tax managers at the big 4 practices, independent tax consultants and a former HMRC tax inspector.

[Vallah]

From HMR&C website:

"It should be noted that simply because an intermediary is based outside the UK does not mean the Managed Service Company legislation does not apply. Those providing their services though companies based outside the UK should not assume that this fact alone exempts their company from the legislation and them from the consequences of non-compliance. If the provider and their associates are based outside of the UK tax jurisdiction, then the persons most at risk are individual workers based in the UK."

That appears on the HMRC website in 2008. Hardly a new development.

[LisaContractorUmbrella]

If HMRC disagreed with the interpretation of the leglislation why not challenge it ? Why don't all the umbrella companies with a vested financial interest club together and obtain an opinion of their own to use as a marketing tool ( against the like of my company ) if it would in fact contradict the other numerous QC's opinions ? HMRC are not challenging it or they wouldn't have released yet another document to consult on putting yet another sticking plaster piece of leglislation into statute ( delivery expected possibly Mid 2012 ) . I understand the reservations some contractors might have about using these schemes but most of it is based on posters to this forum doing HMRC's job for them. If someone can point out to me where our barrister is wrong i'm sure both him and I would be delighted to know, along with tax managers at the big 4 practices, independent tax consultants and a former HMRC tax inspector.

I don't know what sort of scheme you offer Geoff but that's because none of the offshore providers on here are prepared to give details; I can understand that you may not want a competitor pinching your ideas but it comes across as you not wanting to give information because you know that HMR&C don't approve and therefore contractors are at risk; if that's not the case then say so.

If you say that we are doing HMR&C's job for them you have to concede that the advice we offer is in line with HMR&C opinion. Obviously there will be QC's and accountants who will examine the minutiae of legislation and probably find, and use, loopholes; the reason they can do that is, invariably, because the legislation is not well written in the first place but, and it is a big but, HMR&C's intention is usually pretty clear.

[geoff from contracta IOM]

I don't know what sort of scheme you offer Geoff but that's because none of the offshore providers on here are prepared to give details; I can understand that you may not want a competitor pinching your ideas but it comes across as you not wanting to give information because you know that HMR&C don't approve and therefore contractors are at risk; if that's not the case then say so.

If you say that we are doing HMR&C's job for them you have to concede that the advice we offer is in line with HMR&C opinion. Obviously there will be QC's and accountants who will examine the minutiae of legislation and probably find, and use, loopholes; the reason they can do that is, invariably, because the legislation is not well written in the first place but, and it is a big but, HMR&C's intention is usually pretty clear.

Lisa the broad details of my scheme are on are website obviously the intricate details are not but it is widely accepted in the tax specialist industry that schemes using this methodology are compliant assuming certain pitfalls are avoided. Of course HMRC don't approve, they need all the money they can get to pass over to the government to continue to waste, but disapproving and proving in a court of law are two very seperate issues. This is the underlying problem they try to work with crap legislation by making as much noise as possible in the hope it becomes accepted as law.

[LisaContractorUmbrella]

Lisa the broad details of my scheme are on are website obviously the intricate details are not but it is widely accepted in the tax specialist industry that schemes using this methodology are compliant assuming certain pitfalls are avoided. Of course HMRC don't approve, they need all the money they can get to pass over to the government to continue to waste, but disapproving and proving in a court of law are two very seperate issues. This is the underlying problem they try to work with crap legislation by making as much noise as possible in the hope it becomes accepted as law.

The trouble is though Geoff is that you can't claim that something is 'compliant' if HMR&C don't approve; we all know that avoidance schemes are not illegal and that many of the problems surrounding the industry now have been created by badly thought out legislation. Unfortunately, the fact of the matter is that, even though HMR&C may not win in a court of law, the costs involved in defending your position would be enormous and they would not be recoverable, HMR&C have already used the concept of retrospective legislation to fight what they don't agree with and again, even if you win your case, they will legislate to ensure you can't use it in future without breaking the law. This industry seems to be in a position now where 'compliant' = what HMR&C decide at the time and we all have to find a way to work with that or be prepared to fight our corner