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The last minute changes broaden the scope of the measures to target MSC Providers who are 'involved' with the company. The legislation comes into effect on April 6 giving service providers less than a week to ensure that they are compliant or restructure their businesses.
Although the legislation starts to bite in less than a week, the debt transfer aspect relating to unpaid PAYE and NIC doesn't take effect until later. The HMRC can seek to recover these debts from the MSC provider and its directors and officers/associates from August 2007 and from other third parties, such as agents, from January 2008
Definition
The revised definition is contained in Schedule 3 of the Finance Bill (page 90). It says:
61B Meaning of “managed service company”
(1) A company is a “managed service company” if—
(a) its business consists wholly or mainly of providing (directly
or indirectly) the services of an individual to other persons,
(b) payments are made (directly or indirectly) to the individual
(or associates of the individual) of an amount equal to the
greater part or all of the consideration for the provision of the
services,
(c) the way in which those payments are made would result in
the individual (or associates) receiving payments of an
amount (net of tax and national insurance) exceeding that
which would be received (net of tax and national insurance)
if every payment in respect of the services were employment
income of the individual, and
(d) a person who carries on a business of promoting or
facilitating the use of companies to provide the services of
individuals (“an MSC provider”) is involved with the
company.
(2) An MSC provider is “involved with the company” if the MSC
provider or an associate of the MSC provider—
(a) benefits financially on an ongoing basis from the provision of
the services of the individual,
(b) influences or controls the provision of those services,
(c) influences or controls the way in which payments to the
individual (or associates of the individual) are made,
(d) influences or controls the company’s finances or any of its
activities, or
(e) gives or promotes an undertaking to make good any tax loss.
(3) A person does not fall within subsection (1)(d) merely by virtue of
providing legal or accountancy services in a professional capacity.
(4) A person does not fall within subsection (1)(d) merely by virtue of
carrying on a business consisting only of placing individuals with
persons who wish to obtain their services (including by contracting
with companies which provide their services); but this subsection
does not apply if the person, or an associate of the person, does
anything within any of paragraphs (c) to (e) of subsection (2).
Legislation
At this stage, it is difficult to determine who exactly is in or out and many providers are now seeking advice to access their situation and will be advising their clients.
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The general principles of the Bill will be debated at Second Reading. The Bill then passes into 'Commons Committee Stage' for detailed analysis. At this stage, amendments can be tabled and voted on, though in practice the Government is unlikely to lose any significant vote to amend or to accept any substantial changes. By convention, the House of Lords does not change the Finance Bill.
Further information
For more information about the Budget, the MSC proposals and its effects on freelancers, see Shout99's 'Political News' section.
Some service providers and interested parties are currently reviewing their procedures and intend to advise their clients. Some are also explaining their understanding of the new regime. Shout99 will publish those views from third parties which are publicly available in posts linking to this article.
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Susie Hughes © Shout99 2007
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