Are you at risk of having to pay more tax because of the MSC legislation?
This article was provided by Lawspeed who are legal experts on legislation affecting IT Contractors.
Contractors Paying Employment Taxes
In April 2007 the Government introduced legislation to force contractors to pay employment taxes where the contractor obtains advice from certain centralised types of source, referred to as managed service company providers (MSCP).
For an organisation to be an MSCP all it requires is for it to be in the business of promoting or facilitating the use of companies by contractors.
So, for the legislation to apply the MSCP has to ‘involve’ itself with the contractor company.
The definition, therfore, is 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 contractor company caught by these rules is known as a managed service company (MSC).
The legislation as currently drafted, therefore, exposes any company at risk of having to pay MSC employment taxes if it deals with various types of organisations that currently offer services to the contractor or freelancer market.
Examples of organisations that could be MSCPs:
1. Companies who give IR35 advice who offer membership of a scheme in return for ongoing payment
2. Providers of ‘One Stop Shop‘ contractor solutions
3. Those offering facilities that have the effect of encouraging or enabling contractors to operate through limited companies
4. Providers of IR35 tax guarantees or insurance that promise to repay any tax successfully claimed by HMRC
5. 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 that criteria?
If so you could face a tax bill even higher than if the IR35 legislation was found to apply.
Advice and Contact Details
For objective advice on whether the organisation you are dealing with could fall under the MSC legislation speak to your tax lawyer or call Lawspeed now on 01273 236236.