Tuesday, May 25, 2010
A Managed Service Company differs to a Personal Service Company in that there is normally a scheme provider that operates the company on behalf of the worker. Often these are known as "composite companies" with perhaps 10 to 20 workers being put through the same company or "managed personal service companies" with one for each worker but managed by the scheme provider on behalf of the worker.
From 2007/08 the Government has taken action to tackle Managed Service Company (MSC) schemes which are used to disguise arrangements that should be treated as employment arrangements for tax purposes and are used to avoid paying the employed levels of tax and national insurance.
Income that is received by workers through MSCs is now subject to employment levels of tax and NI. It is the responsibility of the MSC to operate PAYE and deduct the necessary tax and NI on the income.
In addition the rules for tax relief on travel expenses are the same as for other employed workers.
Whilst in many cases these companies should be caught by the IR35 legislation, they did not follow the legislation and when caught they simply liquidate as they have no assets, and start up another company the next day. To stop MSCs avoiding payment of these taxes, recovery of underpaid taxes and NICs will be possible from appropriate third parties, principally those behind the company operating such schemes including directors, shadow directors and connected or controlling parties.
These individuals will also be easier to catch as there will be no need to consider the specific relationship between each individual worker and the end client which was proving too labour intensive for HMRC.
The IR35 intermediaries legislation remains in place for personal service companies where the worker operates the company himself. The MSC rules are not targeted at these companies.
How we can help you
We can assist you with...
■Contentious status disputes with the Revenue
■Advice on your contract and an opinion on whether is fails or passes IR35
■Assistance in improving your contract for the purposes of defeating IR35
■All aspects of the accountancy and tax affairs of your business.
For advice on tax issues facing contractors email neil.harries@harrieswatkins.com
Image: graur razvan ionut / FreeDigitalPhotos.net
From 2007/08 the Government has taken action to tackle Managed Service Company (MSC) schemes which are used to disguise arrangements that should be treated as employment arrangements for tax purposes and are used to avoid paying the employed levels of tax and national insurance.
Income that is received by workers through MSCs is now subject to employment levels of tax and NI. It is the responsibility of the MSC to operate PAYE and deduct the necessary tax and NI on the income.
In addition the rules for tax relief on travel expenses are the same as for other employed workers.
Whilst in many cases these companies should be caught by the IR35 legislation, they did not follow the legislation and when caught they simply liquidate as they have no assets, and start up another company the next day. To stop MSCs avoiding payment of these taxes, recovery of underpaid taxes and NICs will be possible from appropriate third parties, principally those behind the company operating such schemes including directors, shadow directors and connected or controlling parties.
These individuals will also be easier to catch as there will be no need to consider the specific relationship between each individual worker and the end client which was proving too labour intensive for HMRC.
The IR35 intermediaries legislation remains in place for personal service companies where the worker operates the company himself. The MSC rules are not targeted at these companies.
How we can help you
We can assist you with...
■Contentious status disputes with the Revenue
■Advice on your contract and an opinion on whether is fails or passes IR35
■Assistance in improving your contract for the purposes of defeating IR35
■All aspects of the accountancy and tax affairs of your business.
For advice on tax issues facing contractors email neil.harries@harrieswatkins.com
Image: graur razvan ionut / FreeDigitalPhotos.net
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