Lawspeed offers key points on proposed MSC legislation

On 17th January Adrian Marlowe and David Vincent of Lawspeed met with six representatives of the Treasury to discuss the proposed new MSC legislation.

During a meeting lasting nearly two hours a number of key points emerged, and the following represents our understanding:

HMRC does not intend to legislate against genuine umbrella companies that employ their workers and pay fully by way of employment income. The draft legislation may be altered, excluding umbrellas, to make this clearer.

Expenses allowable for agency workers, for example for travel and subsistence, is under consideration. The intention is to nail IR35 and expenses tax avoidance schemes and further steps are underway to identify the constituents of such a scheme so that the net can be widely cast.

A dependency upon establishing financial and management "control" as one requirement to qualify as an MSC, as in the current draft, is under review. Amendments to the legislation are expected. There is likely to be a knock on effect in terms of rates, since those workers currently operating through an MSC will receive less net pay if the legislation bites. It would appear that the Treasury view on this is that any demand by the worker for an increased pay rate will be subject to market forces, and may be absorbed by all in the hiring chain, namely the worker, the agency and also the end user.

The Treasury is determined to implement this legislation by April 2007 regardless of the need to amend the draft and the lack of time for agencies and MSC's to adjust their affairs.

The suggestion that agencies should be liable for third party tax debt of a defaulting MSC remains under consideration. However, points about lack of fairness in the proposal and additional administrative burden of an agency wishing to protect itself going forward were well received.

Contractors that are properly operating outside IR35 will continue to be able to take advantage of company tax breaks.

Article reproduced courtesy of www.lawspeed.com

Editor's Note: Further reading here on Managed Service Company legislation.