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| CURRENT SECTION :: Money | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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The Treasury’s plan to net £1bn in tax from managed service company (MSC) providers and contractors is being put on hold by ‘tax-savvy’ advisors. Legal and finance professionals are telling affected individuals they can keep business tax advantages if they step outside incoming avoidance rules by setting up a limited company. From April 6, take-home pay for a quarter of a million people who use MSCs will reduce 15-30%, as they’ll automatically be liable for income tax and national insurance contributions. But ever since the draft laws for managed service companies were announced in December, experts have said workers will avoid higher taxes simply by shifting business model. Setting up a personal service company was recommended to anyone affected by the new laws who ‘wishes to earn more money,’ by chartered accountant SJD Accountancy. Tax advisors Bauer & Cottrell said the prospect of a “serious pay cut” for those using MSC schemes means it’s likely “many” will consider setting up their own personal service company. Legal specialist Egos Ltd agreed, saying the effect of the draft laws to tackle managed service companies would be to drive ‘everybody into using a personal service company (PSC).’ Not all MSC contractors in the ICT industry will be limited company owners by May, however, as that “assumes contractors are only in it for the money,” SJD said at the time. But yesterday, sales of company formation software were reported to be “exceeding all expectations,” as accountants rush to replace MSCs and composite companies with PSCs. Robert Salvoni, of IRIS Practice Software, reportedly traced his firm’s bumper sales to the current spotlight on managed service and composite companies. He told Accounting & Finance 365: “Because IRIS Company Formations is fully integrated, it represents a more time-efficient option for accountants who need to incorporate many companies before the beginning of the new tax year. “In a large number of these cases, the client’s details will already be stored on the IRIS central database, eliminating the need to re-enter data.” The e-magazine also reported an unnamed firm is facing a workload of setting up 800 limited companies before the deadline of April 6. Legal experts say that under the draft laws, genuine personal service companies, like limited companies, ‘absolutely won’t be treated as a managed service company’, and therefore won’t be subject to the same employment taxes. This is despite concerns that limited company owners may be within the scope of the new laws - if they outsource their business to a firm, which HMRC may deem a ‘scheme provider’. A similar caution has been issued by the Chartered Institute of Taxation, which, like the Professional Contractors Group, has told the Treasury its view of the controversial draft laws. “Our main concern is distinguishing between MSCs and PSCs, particularly where the PSC outsource various operations to another party. “The legislation is dependent on there being a clear and unambiguous definition of “exercises control over the finances and general management of the companies,” the CIOT said. In its submission, the institute called for “adequate resources” to be deployed by Revenue & Customs’ enforcement arm, if government is to properly safeguard the Exchequer. The CIOT is also concerned that the list of potential third parties that outstanding tax liabilities can be transferred to makes it ‘highly tempting’ for HMRC to tax each party. Tabling fresh fears, the Institute of Chartered Accountants for Scotland this week said the regulations should be postponed if innocent firms are not the target of the clamp down, as the Treasury claims. “We are concerned that the proposals may adversely affect existing service companies established for sound commercial reasons with no particular focus on tax savings,” ICAS said, referring to umbrella companies. “We are also calling on the government to put off applying the new provisions for a further year, to allow innocent businesses and individual workers time to rearrange their affairs. Otherwise, the new rules will penalise those for whom they were not intended.” Similar calls to delay the enacting of the laws have been sounded by the Recruitment and Employment Confederation and the PCG. Yet lawyers at Lawspeed, who recently met Treasury officials to respond to the document Tackling Managed Service Companies, have hinted the government is not listening. The firm said: “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 MSCs to adjust their affairs.” Previous Page
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