Exposure To Tax In Light Of The MSC Legislation

19 December 2007

A Review by James May of Lawspeed

In April 2007 the Government introduced legislation to force freelance and interim consultants to pay employment taxes where that consultant is operating via a limited company and obtains advice or assistance from certain centralised sources, referred to as managed service company providers (MSCP).

For an organisation to be an MSCP all that is required is for it to be in the business of promoting or facilitating the use of companies by those consultants. For the legislation to apply, the MSCP has to be "involved" with the limited company.

Being "involved" is defined to include, amongst other things, being in receipt of ongoing payments, or promoting any scheme for making good tax losses, for example tax indemnities or insurance. A consultant’s company caught by these rules is known as a managed service company (MSC). The legislation as currently drafted therefore exposes any company to risk of having to pay MSC employment taxes if it deals with numerous organisations that currently offer services to the freelancer or contractor markets.

Examples of organisations that could be MSCPs:

• Providers of IR35 advice who offer membership of a scheme in return for ongoing payment
• Providers of ‘One Stop Shop’ freelancer or contractor solutions
• Providers of facilities that have the effect of encouraging or enabling freelancers or contractors to operate through limited companies
• Providers of IR35 tax guarantees or insurance that promise to repay any tax successfully claimed by HMRC
• Organisations that provide easy access to the guarantee or insurance products referred to above

The above list is not exhaustive, and makes for uncomfortable reading for some operators in the industry. Are you dealing with any person or body that could fit the criteria? If so you could face a tax bill even higher than if the IR35 legislation was found to apply.

For objective advice on whether the organisation you are dealing with could be an MCSP speak to your tax lawyer or call Lawspeed now on 01273 236236.