Avoiding Liability for MSC Contractor Tax

Recently we published an article in the newsletter which talked about how the March budget affected contractors and freelancers.  On Friday I caught up with Adrian Marlowe, MD of Lawspeed Limited.  He was telling me about a seminar they are running for recruiters at the end of July 25th "Avoiding Liability for MSC Contractor Tax"

Now, I have to be honest, with my background in Search and Selection I've never got to grip with contractor recruitment, limited companies, managed service companies (MSCs), etc (or even income tax if I'm honest) so I needed some serious hand holding through this from Adrian.

I thought that what he shared was really interesting, so I wanted to pass it on.

At some point in time the treasury realised that a large number of workers (contractors) were operating through limited companies when the treasury believes they are not in business on their own account.  They are thus taking advantage of tax breaks that limited companies can achieve. The treasury saw that a huge number of these limited companies were managed by central providers that were encouraging workers to operate that way.  The tax that they were particularly concerned about not being paid is the IR35.  So they created draft MSC legislation which was announced in December 06 to stop this. 

However, it soon became obvious that the scheme providers were taking steps to circumvent the legislation and so the treasury has had to re-drafted the legislation to tighten it up.  This new legislation is in force today (and has been since 6th April 2007), although it could be subject to amendment between now and when Royal Ascent is given which will probably be some time in June or early July.

The new tighter legislation is to ensure that none of the limited company tax breaks are available to workers working through MSCs.  The treasury believes that recruitment companies must take some responsibility to ensure this happens.  This means that if they continue to recommend use of companies to benefit the worker they will be liable for the tax that is not paid by the contractor.  Apparently an "innocent" agency that doesn't know or promote the MSC will not be liable (although it will be for the agency to prove its innocence if this is picked up on).

So, all in all (for me at least) it's rather complicated. 

To help ease the confusion and clarify the situation Lawspeed are holding an afternoon seminar (followed by drinks and networking) for contract recruiters, accountants, scheme providers and anyone with an interest in this area on the 25th July.  They have up to 150 places on the seminar (although I think about a 3rd are already filled) and the cost is £185 + VAT.  Adrian is the main speaker and there will also be Peter Clayton (of the Association of Processional Recruiters) and Robin Wythes from the Treasury.  There will also be a number of relevant exhibitors.

If you want more information you should visit Lawspeed's website and sign up there.   As far as I know Lawspeed are the only company offering a seminar of this nature around this complicated subject. If you need to keep up to speed then I'd suggest it's going to be £200 well spent.