MSC Advice
If IR35 wasn't enough, here's the MSC legislation made easy...
After much consultation the Managed Service Companies (MSC) legislation was put into force during the Budget 2007, to further enhance and strengthen the already existing IR35 legislation.
It is a long-standing principle that the tax treatment of income is determined by its nature – that is, income which is properly employment income should be taxed as such. Consistent with this principle, the Government seeks to ensure that even if an individual is working through a company or a scheme provider, but the underlying nature of the contract is one of employment, tax and National Insurance contributions (NICs) should be paid at employed (PAYE) levels.
According to HMRC, In contrast to Personal Service Companies (PSCs), workers using MSCs are almost invariably not in business on their own account and the underlying nature of the contracts in which they are involved is one of employment and should therefore be taxed as so (PAYE).
The MSC legislation has been introduced due to the blatant misuse of IR35 through the use of companies which HMRC did not have the resources to police. My moving the assessment from individuals to the actual service company HMRC gain ground and make the likely challenge easier.
So how does it all fit together? How does it affect me?
There are existing rules (IR35) currently in operation to ensure that the correct tax and NICs treatment is applied to income depending on the “Employment Status” of a workers contract. However these rules are in the vast majority of cases not being followed by Managed Service Companies, which are therefore avoiding employed levels of tax and NICs.
The MSC legislation has been put into force to prevent Managed Service Companies (Composite Companies, PSCs & Scheme Providers) from allowing individuals in gaining an unfair competitive advantage over compliant workers and businesses.
This means in addition to contractors having to truly understand what their “Employment Status” is on each contract undertaken. They also now have to understand the set up of the service company they operate though. The only true compliant option available to contractors are payroll methods and schemes who operate a PAYE service.
So in summary, if when investigated by the HMRC, you are found to be using anything other than a PAYE based payment solution and you are “Inside” or “Deemed Employed” you and your scheme provider will be billed for any underpaid Tax and NICs.
It’s the MSC legislation which gives the HMRC this power. The Transfer of Debt legislation is what the HMRC use to transfer the debt to anyone within the scope of the legislation for recovery should the service company not settle any additional tax charged.
For more information on our Umbrella Company Solution and how the MSC legislation affects you, speak to one of our advisors on 0800 848 8888.
Alternatively, you can contact us online via our Live Assistant or request a call back and an advisor will contact you to help you with your query.