Contractors’ Questions: Is my agent liable under MSC rules?

Contractor’s Question: What is the least amount of activity that my recruitment agency might mistakenly engage in that could make it liable for the transfer of an Managed Service Company’s debt under the MSC legislation? And how can I, a contract worker it places, potentially mitigate my agent’s exposure to the third party transfer of debt rules?

Expert’s Answer: It is not possible to say what least amount of activity would result in an approach from HMRC under the Managed Service Companies transfer of debt provisions because any activity needs to be considered in the context of the third party’s wider activities.

A director, other office holder, or an associate of an MSC and an MSC Provider, can only mitigate exposure to potential transfer of debt by ensuring that the MSC both deducts Income Tax and National Insurance from payments made to the worker and that the deductions are remitted to HMRC timeously. By doing so, no debt will arise which it would be necessary to transfer.   

Recruitment businesses and end clients fall within section 688A (2) (c) ITEPA, and as such the onus is on HMRC to demonstrate that the level of involvement by the recruitment business or end client goes beyond merely innocent commercial involvement. For example, a recruitment business directing work seekers to an intermediary which is an MSC would not be construed by HMRC as innocent commercial involvement, whereas placing an individual work seeker who, it transpires, already provides their services through an MSC, would be construed as innocent commercial involvement.

A recruitment business and end client can mitigate exposure to potential transfer of debt by very carefully considering the extent to which they direct or encourage a worker to provide their services through an intermediary. Any such activity inevitably will increase substantially the risk because it is not possible for end clients/recruitment businesses to understand fully the nature of the intermediary.

The expert was HM Revenue & Customs.

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Contractors bear the brunt of MSC tax laws