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Rupert Chapman writes:
The phone call came on Friday a week ago. The message made me check the date on my watch. Surely it's not April the First already? It wasn't.
The message went along the lines of "somebody has posted an article on Shout99 saying that if you have tax loss insurance you may be caught by the new MSC legislation"
My immediate reaction was that they must be off their trolley, but send me the details anyway.
As I write, that Friday seems a long time ago. There has been a rollercoaster of opinions, further announcements, thousands of telephone conversations, discussions and countless references to common English words in the dictionary.
If nothing else, it has been a week long lesson in English grammar. In particular, the use of commas and the words "and" and "or".
One point of grammar I haven't clarified is whether the legislation is correct in referring to "an MSC" as opposed to "a MSC" - answers on a postcard please!
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Although the legislation mentions professional advisors and agents in such a way to state that these organisations will not be caught merely due to their activities, it does not go so far as to say that these organisations are exempt from the descriptions that will cause personal service companies that use their services to be deemed MSCs.
Clearly this is flawed and cannot possibly be the case. If it could, then it would implicate banks, insurers, accountants, agents, end clients and anyone that contractors deal with that facilitate the fact that they operate in a personal service company structure.
For this reason alone, it is likely that we will see some changes prior to Royal Assent.
Practical basics
So lets get down to the practical basics and try to make some sense of this legislation.
Many people have dwelled long and hard on the five definitions of "involved" in 61B(2) and in doing so, not given sufficient attention to 61B(1)(d). The reason I say this is that it is of no interest to the legislation whether or not an organisation is "involved" with a personal service company, if that organisation doesn't satisfy the following definition:
61B(1)(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.
Clearly the target of the legislation is composite company providers. All of these have made amendments in the past week in order to ensure that they do not fall foul of this definition. Their main line of business (carries on a business) was to promote to contractors the use of companies for contracting services and further they facilitated (made easier) this structure.
The legislation, without providing an exemption has provided a safe haven for such providers so long as the activities are adjusted to compare to the activities of a professional accountancy firm:
A person does not fall within subsection (1)(d) merely by virtue of providing legal or accountancy services in a professional capacity.
So if there are no organisations left who fall foul of 61B(1)(d) then the question of whether they are "involved" will not be raised.
Which is a good thing, because you only have to fall foul of 1 of the descriptions of "involved" to be deemed "involved".Three of the descriptions of involved start with "influences or controls". The broadest of all is 61B(2)(d) influences or controls the company's finances or any of its activities.
Take "or controls the companies finances or" out of the sentence and you are left with "influences any of its activities" and try to think who couldn't be involved - what about a newspaper who prints an article which influences a contractor to establish a PSC.
Influences
The word "influence" is an absolute catch all. It has been stated that where any of the words of the legislation do not have their meanings clarified in the legislation then the dictionary definition is used.
Any firm that provides advisory services to contractors has to "influence" its activities.
Which kind of makes all the other clauses of 61B(2)(d) redundant. In particular 61B(2)(e) gives or promotes an undertaking to make good any tax loss.
If it is the case that providing an insurance against tax loss is indeed an undertaking (and I am not going there) then the provider has already fallen foul of 61B(2)(d) along with the rest of the world.
Which brings me full circle to the beginning and begs the question, does Qdos Consulting fall foul of promoting or facilitating the use of companies to provide the services of individuals (an MSC provider) by providing professional services in the form of contract reviews and providing an insurance product?
Clearly not, as this is the same as the services provided by thousands of accountancy firms.
In fact, the provision of tax loss insurance could be useful to protect other third parties from the debt transfer provisions when they are brought in.
“The scope of the provision is limited so that the legislation is not intended to include anyone who didn’t know or could not reasonably be expected to know, that they are dealing with a MSC”
Part of the risk assessment that is required when applying for Qdos TLC (tax loss insurance) will be a professional assessment that the company is not indeed caught by MSC legislation. Whether this assessment is correct or not (and I assure you it will be correct) such information, when given to third parties such as agents and end clients will exonerate them from the debt transfer provisions, as they are in receipt of a professional opinion that the company is not caught by the MSC legislation.
Therefore by default they could not be reasonably expected to know that the company was caught.
It is therefore my opinion that tax loss insurance, whilst continuing to protect PSCs from the threat of IR35 (which will be as strong as ever) will also be welcomed by agencies and end clients as it protects their directors personal assets from attack through the debt transfer provisions.
As I write this article, I look at my watch and see that it is indeed April Fools' Day. Whilst there is no April Fool in the content above, it makes me think that the phone call I took that Friday, whilst well intentioned, was nine days premature.
Rupert Chapman
Qdos Consulting
Further information
For more information about the Budget, the MSC proposals and its effects on freelancers, see Shout99's 'Political News' section.
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