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simondolan
6th December 2006, 13:09
"Managed Service Company Schemes

The Government is taking action to tackle Managed Service Company (MSC) schemes which are used to avoid paying employed levels of tax and NICs. Income received by workers in MSCs in relation to services provided through the MSC will be subject to employed levels of tax and NICs, with the MSC obliged to operate Pay As You Earn (PAYE) and deduct tax and Class 1 NICs on that income - and the rules for tax relief for travel expenses will be the same as for other employed workers. The Government will also address the problem of MSCs escaping payment of tax and NICs due by allowing the recovery of these debts from appropriate third parties.

This will protect the Exchequer and ensure a level playing field for compliant businesses and workers. The Intermediaries legislation will remain in place for Personal Service Companies.

The Government is consulting on the draft legislation to implement this measure. The draft legislation and questions for consultation are set out in the consultation document Tackling Managed Service Companies, published alongside the Pre-Budget Report today."

Bagpuss
6th December 2006, 13:14
Is an umbrella company an MSC?

malvolio
6th December 2006, 13:18
Is an umbrella company an MSC?

Well done - today's most misguided question!

Umbrellas treat you as an employee for tax purposes so they already pay PAYE and NICs. No point in chasing them really, is there?

Bagpuss
6th December 2006, 13:21
Well done - today's most misguided question!

Umbrellas treat you as an employee for tax purposes so they already pay PAYE and NICs. No point in chasing them really, is there?

I couldn't really give a toss as I'm Ltd, aren't they both known as managed schemes? moreover, Aside from the issue above I think the government might be interested in some of the 'expense' claims some umbrella companies advise on, after all they are tax deductable (for expenses not actually incurred, mmm dodgy). Anyway just thought I'd feign some interest, please move on nothing to see here.

Xenophon
6th December 2006, 13:24
Well done - today's most misguided question!

Umbrellas treat you as an employee for tax purposes so they already pay PAYE and NICs. No point in chasing them really, is there?
Quite right as usual, Mal.

Although the really, really uneducated should check the details of the scheme they have, as many umbrella companies offer both umbrella AND MSC schemes.

Glad I went ltd...

Bagpuss
6th December 2006, 13:29
Quite right as usual, Mal.

Although the really, really uneducated should check the details of the scheme they have, as many umbrella companies offer both umbrella AND MSC schemes.

Glad I went ltd...

Sorry for not educating myself in dodgy ways of operating.

hattra
6th December 2006, 13:29
Well done - today's most misguided question!

Umbrellas treat you as an employee for tax purposes so they already pay PAYE and NICs. No point in chasing them really, is there?

So what do they mean by a managed service company?

Ivor1
6th December 2006, 13:39
"Managed Service Company Schemes

The Government is taking action to tackle Managed Service Company (MSC) schemes which are used to avoid paying employed levels of tax and NICs. Income received by workers in MSCs in relation to services provided through the MSC will be subject to employed levels of tax and NICs, with the MSC obliged to operate Pay As You Earn (PAYE) and deduct tax and Class 1 NICs on that income - and the rules for tax relief for travel expenses will be the same as for other employed workers. The Government will also address the problem of MSCs escaping payment of tax and NICs due by allowing the recovery of these debts from appropriate third parties.

This will protect the Exchequer and ensure a level playing field for compliant businesses and workers. The Intermediaries legislation will remain in place for Personal Service Companies.

The Government is consulting on the draft legislation to implement this measure. The draft legislation and questions for consultation are set out in the consultation document Tackling Managed Service Companies, published alongside the Pre-Budget Report today."

:( oh *****, was with MSC GAINT but now limited, how far are they likely to back date the tax, and will they totally ignore the fact the contracts were outside of IR35 if they were :tantrum:

Ivor1
6th December 2006, 13:39
So what do they mean by a managed service company?

GIANT Powerhouse is one

malvolio
6th December 2006, 13:48
:( oh *****, was with MSC GAINT but now limited, how far are they likely to back date the tax, and will they totally ignore the fact the contracts were outside of IR35 if they were :tantrum:

Depends on the legislation, but IR35 status is nothing to do with it, this is about avoiding tax artifically.

At a minimum they have already reserved the right to apply new legislation retrospectively back to Dec 2004, but depending on how they do it you might be going back 6 years.

To put that in some sort of context, at best the average contractor will be looking at a bill of around £25k...

Ivor1
6th December 2006, 13:50
Depends on the legislation, but IR35 status is nothing to do with it, this is about avoiding tax artifically.

At a minimum they have already reserved the right to apply new legislation retrospectively back to Dec 2004, but depending on how they do it you might be going back 6 years.

To put that in some sort of context, at best the average contractor will be looking at a bill of around £25k...

Im looking more at the £60k plus fine and interest :throw: if applicable, do you think they will fine or just interest ?

Xenophon
6th December 2006, 13:51
Im looking more at the £60k plus fine and interest :throw:
:eek:
You were with an MSC for that long Ivor1?

Ivor1
6th December 2006, 13:53
:eek:
You were with an MSC for that long Ivor1?

18months would of been 12 if Natwest hadnt taken so long to set up my business account. I did put the £ away though just in case, was hoping it wouldnt come to it though.

Anyway one got a link to the consulation doc they mention I cant find it.

GeorgeGregan
6th December 2006, 13:54
This is not a good development for anyone.

I assume the majority of people here run limited companies and take basic measures to ensure they remain outside of IR35, so probably are not too worried about these developments. I've always felt a little more comfortable knowing that there were people using managed service companies who were blatantly taking the piss that would be higher up on Hector's radar than most ltds.

As we all know IR35 is so vague that it's been very difficult to enforce and thus not many people have fallen foul of it. I suspect this might change once the various flavours of managed service co's are shut down and there is a stampede for all their ex-clients to set up their own ltd.

To BI or not to BI?
6th December 2006, 13:54
18months would of been 12 if Natwest hadnt taken so long to set up my business account. I did put the £ away though just in case, was hoping it wouldnt come to it though.

Anyway one got a link to the consulation doc they mention I cant find it.

http://www.contractoruk.com/news/002987.html

swamp
6th December 2006, 13:57
http://www.hm-treasury.gov.uk/media/571/C1/pbr06_chapter5.pdf

Ivor1
6th December 2006, 13:59
http://www.hm-treasury.gov.uk/media/571/C1/pbr06_chapter5.pdf

Cheers but Im after this I think.

"The draft legislation and questions for consultation are set out in the consultation document Tackling Managed Service Companies, published alongside the Pre-Budget Report today."

Pondlife
6th December 2006, 14:06
What does "The Intermediaries legislation will remain in place for Personal Service Companies." mean? :confused:

Dundeegeorge
6th December 2006, 14:07
if you're caught by IR35, you're still caught by IR35. (Unlucky, or more fool you, depending on circumstances).

DimPrawn
6th December 2006, 14:07
IR35 is here for good. Or until you muppets stop voting Labour. :rolleyes:

Ivor1
6th December 2006, 14:14
Anyone any idea how long it will take for them to do the consulation and implement the law. Just wondering how long it will be till they come a knocking.

Also does any of the PCG insurance cover the cost of accoutants to look over your MSC figures to work out what you owe, I wouldnt just go with the revenue figures.

swamp
6th December 2006, 14:14
What does "The Intermediaries legislation will remain in place for Personal Service Companies." mean? :confused:

Intermediaries legislation == IR35
Personal Service Companies == Your Co. Ltd

Ivor1
6th December 2006, 14:24
Found the consultation doc published today link below, tab down a bit to the pdf doc

http://www.hm-treasury.gov.uk/pre_budget_report/prebud_pbr06/other_docs/prebus_pbr06_odmanagedservices.cfm

Nixon Williams
6th December 2006, 14:28
Thought these FAQ's from the Revenue may help!

Managed Service Companies - FAQS

These FAQS relate to the measures set out in the consultation
document ‘Tackling Managed Service Companies’ published on 6
December 2007 and their aim is to make clear who is within the scope of
the measures.

The FAQs reflect the position outlined in the draft legislation contained
in the consultation document. The legislation finally enacted by
Parliament is expected to take effect from April 2007 and may of course
differ from the drafts published for comment.

What is a ‘Managed Service Company’ (MSC)?

An MSC is a form of intermediary company through which workers provide
their services to end clients. In the draft legislation ‘MSC’ includes both
‘composites’ and ‘managed personal service companies’. These are
discussed in detail in paragraphs 2.9 to 2.18 of the consultation document.

In essence a scheme provider promotes the use of these companies and
provides the structure to workers. The worker (although a shareholder) is
almost invariably not in business on his own account and not exercising
control over the company (he is not usually a director of the MSC). That
control lies with the scheme provider who has ongoing involvement in the
MSC, exercising financial and/or management control of the company.

Are these the same as Personal Service Companies?

No. The worker in an MSC is almost invariably not in business for himself and
does not have financial or management control of the company – unlike a
PSC where the worker is usually a director and controls the finances of
company and how it operates.

The PSC may receive advice and support from accountant or other
professional adviser, but this does not amount to ‘control’ in the way that a
scheme provider controls an MSC.

I operate through a PSC - will these new rules apply to me?

No – the new rules will apply only to those within the definition of MSCs set
out in the consultation. The Government welcomes comments on the draft
legislation and will introduce the final version in Finance Bill 07. You should
check that your company isn’t an MSC as defined in the legislation, but if you
are in business on your own account and control your company’s finances
and how the company operates, you will not be an MSC.

If you are in any doubt you should check with your accountant or the adviser
who arranged for the company to be set up.

I work through a PSC – has IR35 changed?

No. The Intermediaries legislation (IR35) will remain in place, unchanged, for
PSCs. The Government intends to remove MSCs from the scope of IR35 and is consulting on the legislation defining MSCs to ensure that it is targeted
accurately.

Consultations need to be in by 02/03/07 !!

Alan

wendigo100
6th December 2006, 14:47
Are these the same as Personal Service Companies?

No. The worker in an MSC is almost invariably not in business for himself and does not have financial or management control of the company – unlike a PSC where the worker is usually a director and controls the finances of company and how it operates. So, if someone jumps from an MSC to a Ltd company, and HMRC come knocking re IR35, won't his history make it harder for him to prove to HMRC he is in business on his own account?

Is it easy for HMRC's IR35 compliance to get lists of MSC-to-Ltd-Co jumpers?

Ivor1
6th December 2006, 14:55
Had a quick scan read of the document all 75 pages of it, it didnt mention anything about the retro applying of the tax all the figures quoted in terms of what they would lose in revenue are based on the fact MSC in there current form remained. Wishful thinking on my behalf I think :spank:

PerlOfWisdom
6th December 2006, 14:58
http://www.hm-treasury.gov.uk/media/571/C1/pbr06_chapter5.pdf
The word "fair" is used 56 times in this document.

Cowboy Bob
6th December 2006, 15:01
Had a quick scan read of the document all 75 pages of it, it didnt mention anything about the retro applying of the tax all the figures quoted in terms of what they would lose in revenue are based on the fact MSC in there current form remained. Wishful thinking on my behalf I think :spank:

Not in the document, but in the speech:-

The Government will also address the problem of MSCs escaping payment of tax and NICs due by allowing the recovery of these debts from appropriate third parties.

Third party = the contractor (if I understand that correctly)

We'll need to wait for the "Targetting Managed Service Companies" document to get the full details, but it doesn't look good for those who have used MSCs...

malvolio
6th December 2006, 15:05
Had a quick scan read of the document all 75 pages of it, it didnt mention anything about the retro applying of the tax all the figures quoted in terms of what they would lose in revenue are based on the fact MSC in there current form remained. Wishful thinking on my behalf I think :spank:

I think it is. The restrospective bit was announced (by Dim Prawn) just after the 2004 PBR, with the clear intention of giving Hector time to investigate and if necessary address various avoiance schemes wef that date. So even if you stop now, historical earnings will still be caught: and as someone else has pointed out, stepping from comp to YourCo will probably flag an IR35 investigation anyway.

The good news is you probably won't get fined, since you weren't aware of the pending change. The bad news is as I said - an average £25k (for a £350 a day bod working 40 weeks a year) plus interest.

malvolio
6th December 2006, 15:06
Not in the document, but in the speech:-

The Government will also address the problem of MSCs escaping payment of tax and NICs due by allowing the recovery of these debts from appropriate third parties.

Third party = the contractor (if I understand that correctly)

We'll need to wait for the "Targetting Managed Service Companies" document to get the full details, but it doesn't look good for those who have used MSCs...

Yep, it's your problem. The composite itself is doing nothing wrong and pays all the right taxes.

You read it here first - about a year ago...

Lucy
6th December 2006, 15:08
Not in the document, but in the speech:-

The Government will also address the problem of MSCs escaping payment of tax and NICs due by allowing the recovery of these debts from appropriate third parties.

Third party = the contractor (if I understand that correctly)

We'll need to wait for the "Targetting Managed Service Companies" document to get the full details, but it doesn't look good for those who have used MSCs...


I had heard a rumour agencies would be liable as they were the last legal entity with their grubby hands on the dosh, ie why some agencies were refusing to deal with Actinium etc etc :confused:

Ivor1
6th December 2006, 15:24
and as someone else has pointed out, stepping from comp to YourCo will probably flag an IR35 investigation anyway.

Just what I need, me thinks a move back to permindom is on the cards, it just aint worth it anymore. This country is a c*** some time, I would be better treated if I were a murdering immigrant.

Oh well, Ive got the ££ but they aint getting from me easy :wave: :

swamp
6th December 2006, 15:30
Moving from MSC to Your Ltd should not point towards IR35, in part because MSCs will become immune from IR35.

bobhope
6th December 2006, 15:34
Am I missing something here or I am the only one thinking that this applying the rules retroactively like this makes the UK have more in common with a Banana republic than the 5th/6th richest country in the world?

swamp
6th December 2006, 15:40
Am I missing something here or I am the only one thinking that this applying the rules retroactively like this makes the UK have more in common with a Banana republic than the 5th/6th richest country in the world?

Where does it say the new rules on MSCs will be retrospective?

I can't find anything.

Lucy
6th December 2006, 15:40
Am I missing something here or I am the only one thinking that this applying the rules retroactively like this makes the UK have more in common with a Banana republic than the 5th/6th richest country in the world?


Umm, try 18th. Only one above France.

sasguru
6th December 2006, 15:42
Umm, try 18th. Only one above France.

Guess you're talking GNP?

Lucy
6th December 2006, 15:43
Guess you're talking GNP?


PPP

Cowboy Bob
6th December 2006, 15:45
Where does it say the new rules on MSCs will be retrospective?

I can't find anything.

That's from the budget in 2004 where they announced that any closed tax loopholes in the future could be backdated to December 2004.

To be honest, this targetting of composites and the fact that the tax will be backdated to 2004 has been common knowledge for a while (they even pre-announced that they were going to announce it in the last budget). Not sure I have any sympathy for anyone who has joined a composite since then...

sasguru
6th December 2006, 15:47
PPP

I bet if we take London separately PPP will be even worse than 19th?

Lucy
6th December 2006, 15:52
That's from the budget in 2004 where they announced that any closed tax loopholes in the future could be backdated to December 2004.

To be honest, this targetting of composites and the fact that the tax will be backdated to 2004 has been common knowledge for a while (they even pre-announced that they were going to announce it in the last budget). Not sure I have any sympathy for anyone who has joined a composite since then...


Composites should be penalised in some way also, they are meant to be the 'so called' experts...

Lucy
6th December 2006, 15:53
I bet if we take London separately PPP will be even worse than 19th?

Probably, I've lived in the US, NZ, Australia and HK and I've never felt so poor.

Cowboy Bob
6th December 2006, 15:55
Composites should be penalised in some way also, they are meant to be the 'so called' experts...

Not sure I agree with that. They're businesses and have nothing to be penalised for really if they pay all their taxes. It's up to the individual contractor to make sure that their taxes are fully paid and correct - and saying "I didn't know" doesn't wash, it's their obligation to find out.

The only composites who should be penalised are those that commit the expenses scam, but that's a completely different matter.

malvolio
6th December 2006, 15:55
Moving from MSC to Your Ltd should not point towards IR35, in part because MSCs will become immune from IR35.

Huh? Does not compute - not least because users of MSCs will be paying the same NICs and PAYE as regular employees anyway so there is no practical difference.

However, if you were previously working in an arrangement that was clearly an artificial tax avoidance measure (Mr Brown's words, not mine), and therefore "falsely" declaring yourself as a non-employee, shifting to a Ltd would in Hector's eyes merely be continuing the avoidance by another means, so he will use IR35 instead.

Lucy
6th December 2006, 15:59
Not sure I agree with that. They're businesses and have nothing to be penalised for really if they pay all their taxes. It's up to the individual contractor to make sure that their taxes are fully paid and correct - and saying "I didn't know" doesn't wash, it's their obligation to find out.

The only composites who should be penalised are those that commit the expenses scam, but that's a completely different matter.


Well, if 'I don't know' I go to an expert, for the same reason as I don't perform surgery on myself. Composites offer solutions and promise their legitimacy, as a doctor says he knows how to take out my appendics, I believe him.

It's not a case of ignorance is no excuse, it is a case of I know I don't know so I am asking for some professional advice.

Cowboy Bob
6th December 2006, 16:05
Well, if 'I don't know' I go to an expert, for the same reason as I don't perform surgery on myself. Composites offer solutions and promise their legitimacy, as a doctor says he knows how to take out my appendics, I believe him.

It's not a case of ignorance is no excuse, it is a case of I know I don't know so I am asking for some professional advice.

You don't ask the provider of a service if they provide the best service, you ask an independent expert, ie. an accountant. Of course the composite is going to say that they're the best solution, they're trying to sell you something.

It's not the same thing as a doctor, they're not selling you anything. It's like how if you're going to get a mortgage you go to an IFA, you don't just walk into any old high street lender and sign up at the first one that offers you one. Same thing applies with your payment arrangements. This is your long term financial future, don't ever trust "expert advice" from a salesman.

wendigo100
6th December 2006, 16:09
Well, if 'I don't know' I go to an expert, for the same reason as I don't perform surgery on myself. Composites offer solutions and promise their legitimacy, as a doctor says he knows how to take out my appendics, I believe him.

It's not a case of ignorance is no excuse, it is a case of I know I don't know so I am asking for some professional advice.Try telling that to Arctic Systems.

The expert advice they received was the same as everyone received from any accountant, and was supported by the IR/HMRC - until IR/HMRC suddenly changed their minds!

Even expert advice from God is worth nothing if HMRC decides to disagree with it!

Lucy
6th December 2006, 16:11
You don't ask the provider of a service if they provide the best service, you ask an independent expert, ie. an accountant. Of course the composite is going to say that they're the best solution, they're trying to sell you something.

It's not the same thing as a doctor, they're not selling you anything. It's like how if you're going to get a mortgage you go to an IFA, you don't just walk into any old high street lender and sign up at the first one that offers you one. Same thing applies with your payment arrangements. This is your long term financial future, don't ever trust "expert advice" from a salesman.

If the composite is made up of accountants, there is good reason to believe they are applying their expert knowledge.

It is the same as a doctor, in most other countries they are not 'free'.

Ivor1
6th December 2006, 16:11
Huh? Does not compute - not least because users of MSCs will be paying the same NICs and PAYE as regular employees anyway so there is no practical difference.

However, if you were previously working in an arrangement that was clearly an artificial tax avoidance measure (Mr Brown's words, not mine), and therefore "falsely" declaring yourself as a non-employee, shifting to a Ltd would in Hector's eyes merely be continuing the avoidance by another means, so he will use IR35 instead.

The problem is the consulation document makes a sweaping statement that more or less everyone working through a composite is an employee regardless of there contract, when in fact they could of been outside of IR35.

The retro applying of tax really sits uncomfortable with me in this case. The government has got to bare some responsibility for the rise of composite companies, but as we everything else they wont.

sasguru
6th December 2006, 16:11
Probably, I've lived in the US, NZ, Australia and HK and I've never felt so poor.

Aye. It's not how much you earn, it's what you HAVE to spend ...

Cowboy Bob
6th December 2006, 16:12
If the composite is made up of accountants, there is good reason to believe they are applying their expert knowledge.


No, there is good reason to suspect that they're trying to sell you something. You need independent advice...

Bagpuss
6th December 2006, 16:18
Probably, I've lived in the US, NZ, Australia and HK and I've never felt so poor.

Then why pay so much to live in London?

Lucy
6th December 2006, 16:25
Then why pay so much to live in London?


The witty, wise, friendly locals. :D

Lucy
6th December 2006, 16:25
No, there is good reason to suspect that they're trying to sell you something. You need independent advice...


Well, silly me, I thought 'fitness for purpose' would apply.

Bagpuss
6th December 2006, 16:27
The sh1tty, arsewipe, unfriendly theiving locals. :D

Sort of an anthropological interest then? ;)

Ivor1
6th December 2006, 16:30
If anyone is with GIANT I would be interested to see what they say in the press releases in there portal. I was with them (head down in shame), but not anymore so cant access this.

sasguru
6th December 2006, 16:30
Sort of an anthropological interest then? ;)

Can't help it if lesser beings like you can't take the pace ...

Bagpuss
6th December 2006, 16:34
Can't help it if lesser beings like you can't take the pace ...

When hit by a joyrider?
:talk:

Keep your 300k ex council flat next to a crack den :rollin:

sasguru
6th December 2006, 16:41
Keep your 300k ex council flat next to a crack den :rollin:

No. Actually I've sold my BTLs next to the crack dens. Later I'll come and buy the manor house in your village. Don't forget to tug your forelock as I pass.

swamp
6th December 2006, 16:47
Glad to see the PCG is on our side . . .

"PCG welcomes the Treasury’s openness in seeking to change the law and explaining its reasons and intentions in doing so;

* PCG has long been critical of the use of terms such as "non-compliance" to erode the distinction between evasion and avoidance
* Managed service companies’ arrangements currently constitute avoidance and are therefore legal; PCG welcomes the direct approach taken here of introducing changes via statute."

John Galt
6th December 2006, 16:51
I don't get this at all. I understand that composites are doing something dodgy as you have lots of contractors all under one company but if you have one contractor and one limited company but it is managed by a service provider where's the problem - surely the Government would get the same amount of tax as long as the contractor's outside of IR35??????? :confused:

Mordac
6th December 2006, 18:16
I don't get this at all. I understand that composites are doing something dodgy as you have lots of contractors all under one company but if you have one contractor and one limited company but it is managed by a service provider where's the problem - surely the Government would get the same amount of tax as long as the contractor's outside of IR35??????? :confused:

I may have read this wrong, but I suspect what Gordo is doing (by excluding MSCs from IR35) is preventing contractors from using the "but I was outside IR35" defence. So even if you were outside IR35, the very fact you were using a MSC makes you now liable for all the backdated NI. Ouch. And to think he was on R5 singing the praises of the "knowledge economy". Yeah, right. Knowledge from Poland, and an economy in India. :rolleyes:
On the plus side, the compo fodder should keep Hector busy for at least the next couple of years.

Ivor1
6th December 2006, 18:36
I may have read this wrong, but I suspect what Gordo is doing (by excluding MSCs from IR35) is preventing contractors from using the "but I was outside IR35" defence. So even if you were outside IR35, the very fact you were using a MSC makes you now liable for all the backdated NI. Ouch.

Thats what I thought nasty mothers :moon: , and it was them who forced alot people into MSC. When I first came into contracting I wasnt sure if it was for me so went the composite route, as to a newbie it took a while to get my head around IR35, as it went against what I thought was logical. I think the government should say hands up we made a mistake just give us what you owe us and we will forget about the interest, highly unlikely though. And it will take a while for them to come knocking and during that time again interest is still accruing. So alot of people did something they thought was ok at the time, government realises they were partly to blain, and then joe public pays for the mistake with interest while they sort it<sigh> Dont mind paying what I owe but do mind the interest part of it.

donaldduke
6th December 2006, 23:03
I dont think its a clear cut case of them applying this retrospectively.

Every case is different, they will have to go after each MSC individually and each MSC will get its day in court.

Some MSCs are more legit than others.

Some are total scams. Some of the better ones have strong case that they were legal.

hattra
6th December 2006, 23:12
I dont think its a clear cut case of them applying this retrospectively.

Every case is different, they will have to go after each MSC individually and each MSC will get its day in court.

Some MSCs are more legit than others.

Some are total scams. Some of the better ones have strong case that they were legal.

Err...... they are legal - they just may have misinterpreted the tax rules that hadn't yet been published

Pondlife
6th December 2006, 23:17
Not sure if I read it correctly but this seemed to come into effect in Apr 07, there was no mention of backdating and although effectively the same as IR35 was differerent to 'intermediatry legislation' and was a new initative. That is, he cannot go back to 04 as it's a different rule. IANAL etc.

hattra
6th December 2006, 23:21
The Giant portal says nothing, of course - time to go back to my own Ltd, I guess.

Curious though - the only difference between having a Giant Powerhouse Ltd. company, and my own Ltd. is that I'm not a director of the Giant company. Puts me in the same position of every other employee shareholder in a company - I wonder if they are going to start having to pay NI on their dividends? :rolleyes:

donaldduke
6th December 2006, 23:23
This is the email i got from giant:

"During the Chancellors pre budget speech today he referred to some potential changes to the legislation concerning Managed Service Companies.

These potential changes affects the Giant Powerhouse product from April 2007 onwards, however the Giant Strongbox product appears unaffected.

Giant is conducting a review of the papers issued by HM Treasury and intends to participate in the consultation requested by them. Following this consultation we will update everyone on any changes required for April 2007. We will ensure that any changes introduced are implemented with the minimum of disruption to you. "

MobileCheese
6th December 2006, 23:28
Not sure if I read it correctly but this seemed to come into effect in Apr 07, there was no mention of backdating and although effectively the same as IR35 was differerent to 'intermediatry legislation' and was a new initative. That is, he cannot go back to 04 as it's a different rule. IANAL etc.

I hope your right :wave:

The published document though does detail the amount of additional revenue they expect to pull in from the changes though over a 2007-2008, 2008-2009 and 2009-2010 period. The figure was around £250mil first period, second period £450mil then decrease tp £150mil or something. I can't workout how they got these figures if their not planing to back date, as it increases in the second period then goes down. Plus they mention of debts, if the law comes into effect April 2007 and from that period you cant run a MSC as currently is where is the debt going to come from ? Hopefully they may meet people affected somewhere in the middle, but I suppose thats wishful thinking based on the previous sh*tty decisions :cool:

donaldduke
6th December 2006, 23:32
I hope your right :wave:

The published document though does detail the amount of additional revenue they expect to pull in rom the changes though over a 2007-2008, 2008-2009 and 2009-2010 period. The figure was around £250mil first period, second period £450mil then decrease tp £150mil or something. I can't workout how they got these figures if their not planing to back date, as it increases in the second period then goes down. Plus they mention of debts, if the law comes into effect April 2007 and from that period you cant run a MSC as currently is where is the debt going to come from ? Hopefully they may meet people affected somewhere in the middle, but I suppose thats wishful thinking based on the previous sh*tty decisions :cool:

Do you have link to the published document.

MobileCheese
6th December 2006, 23:34
Do you have link to the published document.

From an early post in this thread :cool2: its the link to site and on there is the pdf.. Seems link doesnt work not but search for managed service in the search thing and it comes up

http://www.hm-treasury.gov.uk/pre_b...gedservices.cfm

page 35 interesting quote about getting employee rights.

donaldduke
7th December 2006, 00:15
From an early post in this thread :cool2: its the link to site and on there is the pdf.. Seems link doesnt work not but search for managed service in the search thing and it comes up

http://www.hm-treasury.gov.uk/pre_b...gedservices.cfm

page 35 interesting quote about getting employee rights.

Thanks for link.

My reading of it is as follows.

MSC were allowed to decide (subject be being challenged by IR ofcourse) if a worker was inside or outside IR35 and pay dividends or PAYE accordingly.

But the IR thinks that most MSCs were too easily saying outside IR35, and the IR doesnt have the resources to review one million contracts a year (250,000 x 4 contracts a year) to prove otherwise.

The reason the IR thinks this way is that they have stricter interpretation of what contracts are inside or outside IR35 compared to anyone else.

So they have now decided that all workers using MSCs will now pay full PAYE because invariably most should be caught anyway.

If your past MSC contracts can withstand IR35 i dont think they can retrospectively come after you using the 'going after the third party to get the tax owed' clause as you dont owe any tax.

Even if you were caught by IR35 its unlikely they will come after you retrospectively as there are just too many contracts to review.

malvolio
7th December 2006, 00:53
The problem is the consulation document makes a sweaping statement that more or less everyone working through a composite is an employee regardless of there contract, when in fact they could of been outside of IR35.

The retro applying of tax really sits uncomfortable with me in this case. The government has got to bare some responsibility for the rise of composite companies, but as we everything else they wont.

Nothing to do with IR35, everything to do with tax avoidance. In Gordonworld, avoidance is a bad thing and should be stamped out. Using a corporate structure where you have no responsibility or authority just to put yourself in the box marked "Limited Company with shares" means you are not in business and so are employed by 'someone' (don't care who, except it's not you) and so should pay full rate tax. After all, if you take no business risk, why should you benefit from business-style tax breaks? Retrospective action is also unfair, but the option has been retained and they don't do things like that unless they plan to use them

wendigo100
7th December 2006, 07:37
If your past MSC contracts can withstand IR35 i dont think they can retrospectively come after you using the 'going after the third party to get the tax owed' clause as you dont owe any tax.

Even if you were caught by IR35 its unlikely they will come after you retrospectively as there are just too many contracts to review.Unless they say "caught" to all of them and put the onus on each individual contractor to appeal it.

MobileCheese
7th December 2006, 07:50
We just dont know whats going to happen to be honest, only assumptions we can make with confidence is they will want there money. I'm in the same position as a few others here and potentially owe a lot of money, I was netting around 68%. I didnt really sleep last night worrying about it but nothing you can do now :freaky: .

bobhope
7th December 2006, 08:02
I thought IR35 was meant to net about £500m a year? But the last time HMRC were asked they said that they didn't keep any figures on it.

simondolan
7th December 2006, 09:07
We just dont know whats going to happen to be honest, only assumptions we can make with confidence is they will want there money. I'm in the same position as a few others here and potentially owe a lot of money, I was netting around 68%. I didnt really sleep last night worrying about it but nothing you can do now :freaky: .


No need to worry - I've read through the whole 72 page document about this and the implementation will take place from 6th April 2007. There is no suggestion of any backdating.

MobileCheese
7th December 2006, 09:29
My office is actually next to a revenue office, I can look in and see them and they can look into mine and see my arse :moon: :moon: :moon:

tim123
7th December 2006, 09:56
Nothing to do with IR35, everything to do with tax avoidance.

It has to be said that wrt the 'expenses' position, this is about evasion.

tim

BoredBloke
7th December 2006, 10:24
Not all MSC's used dodgy expenses to bump up the take home pay.

wendigo100
7th December 2006, 10:30
No need to worry - I've read through the whole 72 page document about this and the implementation will take place from 6th April 2007. There is no suggestion of any backdating.But I thought that this was based on Gordon's 2004 regulation that all potential tax-avoidance arrangements must now be "approved" by HMRC?

I understood this, hopefully wrongly, to be the rejection of MSCs under that regulation, which means that MSCs started being non-compliant in 2004.

simondolan
7th December 2006, 10:46
But I thought that this was based on Gordon's 2004 regulation that all potential tax-avoidance arrangements must now be "approved" by HMRC?

I understood this, hopefully wrongly, to be the rejection of MSCs under that regulation, which means that MSCs started being non-compliant in 2004.

No, these MSC's could not be considered tax avoidance for the purposes of disclosure. This is new legislation which will be on the statute in time for 6th April 2007, it does not use existing legislation to clamp down, so there won't be any backdating issues.

There can really only be one piece of valid advice and that is to form your own Ltd Co, or if low paid/short term, or you simply don't want any admin go Umbrella.

MobileCheese
7th December 2006, 10:56
[QUOTE=simonsjdaccountancy]No, these MSC's could not be considered tax avoidance for the purposes of disclosure. This is new legislation which will be on the statute in time for 6th April 2007, it does not use existing legislation to clamp down, so there won't be any backdating issues.
QUOTE]

I pray and hope that your right :) :)



Dear Santa,

For xmas this year I would like not to have to back date the NICs and TAX I owe for using an MSC.

Thanks
Mr Cheese

Cowboy Bob
7th December 2006, 11:13
This is new legislation which will be on the statute in time for 6th April 2007, it does not use existing legislation to clamp down, so there won't be any backdating issues.


So what did the chancellor mean when he said this?

The Government will also address the problem of MSCs escaping payment of tax and NICs due by allowing the recovery of these debts from appropriate third parties.

donaldduke
7th December 2006, 11:23
So what did the chancellor mean when he said this?

The Government will also address the problem of MSCs escaping payment of tax and NICs due by allowing the recovery of these debts from appropriate third parties.

This seems it apply to MSCs going forward, if an MSC does not use PAYE for its contractors and then shutdowns the IR can now go after the contractors.

According to the document they are not (easily) able to do this at present.

Bagpuss
7th December 2006, 11:52
So to sum up, I was right that those under umbrella companies also lose out.

Many Thanks
Bagpuss

simondolan
7th December 2006, 12:48
So what did the chancellor mean when he said this?

The Government will also address the problem of MSCs escaping payment of tax and NICs due by allowing the recovery of these debts from appropriate third parties.

What he wants to address is the fact that at the moment it is very difficult to come after the composite for PAYE/underpaid tax - they have no assets so nothing to go after.

Post 5th April 2007 when this new legislation hits they want to make sure that even if composites still trade they cannot avoid the whole tax/NI hit by claiming no assets - the Revenue will just go after the Contractor instead.

simondolan
7th December 2006, 12:49
So to sum up, I was right that those under umbrella companies also lose out.

Many Thanks
Bagpuss

Only to the extent that contractors will no longer be able to claim the high level of expenses currently promoted and encouraged by certain unethical Companies.

hattra
7th December 2006, 13:13
Only to the extent that contractors will no longer be able to claim the high level of expenses currently promoted and encouraged by certain unethical Companies.

What do you consider a "high level".

When I was back in permieland, I used to be able to claim an un-receipted daily allowance when travelling on company business, to cover "incidentals", that was actually more (in real terms) than I claim now - I think it's still quite common practice - are permanent staff going to have to pay tax on that now.

IR35 Avoider
7th December 2006, 13:15
Third party = the contractor (if I understand that correctly)


Post 5th April 2007 when this new legislation hits they want to make sure that even if composites still trade they cannot avoid the whole tax/NI hit by claiming no assets - the Revenue will just go after the Contractor instead.

I read the consultation document last night, and I'm pretty confident that "third party" means the accountants running the composites, and perhaps (but only in extreme circumstances, and depending on what comes out of the consultation) the agency or the client.

Having said that, what they are planning should mean they will in future be able to come after contractors more easily.

Up to now, if you receive non-PAYE money from your employer, such as dividends from a composite, and HMRC determine this should have been PAYE (because of IR35 or previous legislation) they can only come after the contractor if they can prove he wilfully colluded with the employer, or if the wrong payment was an error in good faith by the employer. (I presume these rules are meant to protect employees from unscrupulous employers who fail to deduct the right amount of PAYE, leaving the employee to pick up the bill later.) In the consultation document they (effectively) point out that even when someone is an IR35-failure but getting dividends, then even though the IR35 legislation says the contractor is liable for the tax and employees NI, just as any employee who receives pay without correct deductions would be, they can't necessarily go after him.

In future, with this legislation, any employee will know that all income from a company they don't control must be subject to PAYE, so the "I didn't understand the evil employer was ripping me off" defense won't work any more. Having said that, it is just my own deduction that it will now be easier to go after contractors - I don't think there is any suggestion in the document that this is explicitly on their agenda. It is the accountants, then agencies, then clients that are in their sights. (I think there is a an implicit attitude that mere employees can't be expected to understand complicated things like tax.)

hattra
7th December 2006, 13:32
So if I set up a Ltd, and outsource all the accounting and payroll stuff to an accountancy company (I'm not good at the paperwork side, so employ someone who is), and continue to operate in exactly the same way as now, remaining outside of IR35 on a contractual and operational basis etc, I'm treated differently for tax purposes.

Or maybe I just become a director of the company I already legally own 100% (i.e. my bit of the composite).

tim123
7th December 2006, 14:36
Not all MSC's used dodgy expenses to bump up the take home pay.

No they don't. But Gordo has decided that as:

a) it's too hard to catch the ones that do

b) there is no legitimate business case for MSC's,

they should be legislated against.

So, tought titties on the ones that were legit, the industry should have tried harder to put their house in order (and running scared when someone threatens to serve a writ for doing nothing more than "correctly suggesting that company X is doing something illegal", is "not trying hard enough").

tim

tim123
7th December 2006, 14:42
What do you consider a "high level".

When I was back in permieland, I used to be able to claim an un-receipted daily allowance when travelling on company business, to cover "incidentals", that was actually more (in real terms) than I claim now - I think it's still quite common practice - are permanent staff going to have to pay tax on that now.


1) you presumably only did this one day a month or so. Not every day of the month.

2) You were not in the position of selecting a specific job, based upon whether you got a jolly out of it. The trips were incidental you day to day job, not the journey that you made to get to your job.

tim

BoredBloke
7th December 2006, 15:09
"No they don't. But Gordo has decided that as:

a) it's too hard to catch the ones that do


Utter Bolloxs I'm afraid. The ones which did this were the ones who actively promoted their dispensations - granted by the IR and so not difficult to weed out. This whole thing about the reciepts was of the revenues making. If they wanted to stop this practice all they had to do was cancel the dispensations.

Money Money Money
7th December 2006, 17:29
Bloody hell Simon, bit quick to take full advantage of this aren't you?

Thought it was just a PRE budget report??? :freaky:

http://www.sjdaccountancy.com/cgi-bin/item.cgi?id=17155&d=101&h=160&f=127

As a result of this announcement, ALL Contractors and Freelancers who use a Managed Service Company, Composite company or employment services company e.g. Giant, Brooksons, Parasol IT or Prosperity 4 will no long be able to claim any expenses.

malvolio
7th December 2006, 18:01
"No they don't. But Gordo has decided that as:

a) it's too hard to catch the ones that do


Utter Bolloxs I'm afraid. The ones which did this were the ones who actively promoted their dispensations - granted by the IR and so not difficult to weed out. This whole thing about the reciepts was of the revenues making. If they wanted to stop this practice all they had to do was cancel the dispensations.

You totally miss the point that virtually all large companies (and a lot of small ones) have an expenses dispensation, so you can't use that as a separator and they all make it clear (to a greater or lesser extent) that it makes no odds to them how you charge expenses but you need to manage your affairs properly. I don't think advertising slogans should be the cause for a tax investigation.

Commercially there is little real reason for an MSC other than as a tax avoidance; the major proportion of their clients are not interested in business efficiency as much as they are in not paying NICs.

BoredBloke
7th December 2006, 23:09
Yes big companies do that - I am aware of this fact. But the point which was made was that it would be too difficult to police those abusing the dispensation. That wouldn't be difficult at all. Firstly there are not millions of MSC operators out there. They don't hide away as they have to advertise to gain members. So generating a complete list of these would not be a difficult task at all. Within this number there will be a chunk who have dispensations. This could well be all of them. Within that number there will be a number encouraging their members to abuse the system. Everybody on here knows the P4 business model. If we knew it, then presumably the IR knew it also. So why didn't they act.

It is quite wrong to tar all the MSC's out there with the P4 brush. It's all academic now anyway.

stackpole
7th December 2006, 23:13
You tell 'em TE! I'm backing you because you've had plenty of time at "work" to read up on it.

malvolio
7th December 2006, 23:23
It is quite wrong to tar all the MSC's out there with the P4 brush. It's all academic now anyway.

I'm not. Your proposal was to target some MSCs on some arbitrary basis. Expenses isn't the problem, which is why dispensations are a complete red herring. A company paying dividends to a pretend "shareholder" who has no other interest in the company is the problem.

wildstyle
8th December 2006, 11:06
Bloody hell Simon, bit quick to take full advantage of this aren't you?

Thought it was just a PRE budget report??? :freaky:

http://www.sjdaccountancy.com/cgi-bin/item.cgi?id=17155&d=101&h=160&f=127

As a result of this announcement, ALL Contractors and Freelancers who use a Managed Service Company, Composite company or employment services company e.g. Giant, Brooksons, Parasol IT or Prosperity 4 will no long be able to claim any expenses.

I have had a chat to Parasol about this already and they state they are unaffected by this. They state you will still be able to claim schedule E expenses as the payment is taxed at source.

I guess the jurys out for a while.

I'm going to wait til after christmas and speak to my tax advisor.

simondolan
8th December 2006, 11:52
I have had a chat to Parasol about this already and they state they are unaffected by this. They state you will still be able to claim schedule E expenses as the payment is taxed at source.

I guess the jurys out for a while.

I'm going to wait til after christmas and speak to my tax advisor.

For them to say they are unaffected is quite frankly wrong. The draft legislation quite clearly states that umbrella Companies are included (page 20 footnote). It also goes on to say (page 23) that people using MSC's (which include umbrellas by their definition) will be treated like normal employees for expense purposes ie you will be able to claim very little, and certainly not home to work travel which is of course the bulk of most contractors claims.

Xtrain
8th December 2006, 12:58
I have had a chat to Parasol about this already and they state they are unaffected by this. They state you will still be able to claim schedule E expenses as the payment is taxed at source.

I guess the jurys out for a while.

I'm going to wait til after christmas and speak to my tax advisor.

The PBR is obviously tackling 2 areas that they see as issues:

1. Everyone in composites & MSC's saying they are outside of IR35 and therefore using the dividend option to reduce tax / ni

2. The claiming of expenses, in particular travel to work and subsistence, via all kinds of umbrellas (composite, MSC's and PAYE) using the dispensation angle.

They are going to close both these loopholes in April as that is exactly what they have said they will do in the PBR.

I would expect all the composite people to move over to single limited companies and no doubt their current umbrella / managed service provider will provide that option or they will go out of business.

But the expenses angle is a different matter. If it is so, that no travel to work expenses and subsistence can be claimed, then there is no point in using an umbrella, you might as well go on the agency payroll and cut out the cost of using the 3rd party umbrella. If any provider in this industry thinks it doesn't affect them then I think that is scandalous.

The IR had a go at me last year on the travel to work stuff and lets be honest 95%+ of contractors only have 1 permanent place of work and it isn't home or the umbrellas office. Normal employees cannot claim travel to work expenses, their breakfast / lunch / dinner nor can they get laptops etc... so you have to say the IR have got a point.

BoredBloke
8th December 2006, 14:34
"The IR had a go at me last year on the travel to work stuff and lets be honest 95%+ of contractors only have 1 permanent place of work and it isn't home or the umbrellas office. Normal employees cannot claim travel to work expenses, their breakfast / lunch / dinner nor can they get laptops etc... so you have to say the IR have got a point."

When I worked for a management consultancy last year, all their staff were paid to travel from London to Chester and put up in a hotel and able to claim all their outgoings. They did this for the best part of a year. When they went into their London offices they were not able to claim anything. I don't see how this is any different to what I'm currently doing.

Every Friday I work from home where I have a room fully kitted out with everything I need for my business - and a few mondays also depending on meetings etc. Obviously I do not claim anything in my expenses for this working from home (as I don't have any), but do when I work at the client site in London. I also have had to supply my own laptop for a couple of roles and have used it many times since on different client sites. Again in the management consultancy, all their staff were given a laptop - which they took home and were free to use in their own time. Again I fail to see how my laptop purchase through my business is any different to the Management Consultancies purcahse for their staff.

DodgyAgent
8th December 2006, 14:42
Why do none of you seem to go self employed?

BoredBloke
8th December 2006, 14:54
because we are not allowed cortesy of old labour in the 70's

DodgyAgent
8th December 2006, 15:08
because we are not allowed cortesy of old labour in the 70's


what is the difference between you and a plumber

(apart from the fact that plumbers are useful :rollin: ) could'nt resist

Churchill
8th December 2006, 15:50
Why do none of you seem to go self employed?

Most agencies will not deal with self-employed contractors.

hattra
8th December 2006, 21:35
1) you presumably only did this one day a month or so. Not every day of the month.

2) You were not in the position of selecting a specific job, based upon whether you got a jolly out of it. The trips were incidental you day to day job, not the journey that you made to get to your job.

tim

Normally two or three days a week, but sometimes for weeks at a time.

And I ran the team and allocated the work, so yea I did choose the jobs I wanted to do

TinTin
8th December 2006, 22:12
A lot of older contractors will probably turn round and say 'I told you so' to the newbies that were attracted by the well written and marketed proposals for earnings up to 85% of gross fees. They were offering a Dutch auction as to who would outbid on expenses WITHOUT receipts FFS!. You only have to look at some outrageous claims by N*r*a and others to see that these don't stack up. A company based in the IoM with solicitors in the South, accountants in the Midlands and payroll in the North of the country, operating dividends from the Caribbean. do me a favour, IR are not THAT stupid. AFAIK, most of their clients are our cousins from Oz, NZ, SA etc that don't really give a monkeys about compliance. Most of the UK guys that I know of operate through Ltd Cos or legal umbrellas like Simon's and a few others. Greed is good, but don't end up like Gecko.

hattra
8th December 2006, 23:49
Why do none of you seem to go self employed?

In the early days, many did, but then an agency (can't remember the name) got billed for all the NI and PAYE that the contractors owed (about £2 million, IIRC), and no agency would deal with contractors on that basis ever again.

If you're willing to take someone on as self-employed, I'm game - got any IBM mid-range contracts?

Xtrain
9th December 2006, 21:58
"When I worked for a management consultancy last year, all their staff were paid to travel from London to Chester and put up in a hotel and able to claim all their outgoings. They did this for the best part of a year. When they went into their London offices they were not able to claim anything. I don't see how this is any different to what I'm currently doing.

Every Friday I work from home where I have a room fully kitted out with everything I need for my business - and a few mondays also depending on meetings etc. Obviously I do not claim anything in my expenses for this working from home (as I don't have any), but do when I work at the client site in London. I also have had to supply my own laptop for a couple of roles and have used it many times since on different client sites. Again in the management consultancy, all their staff were given a laptop - which they took home and were free to use in their own time. Again I fail to see how my laptop purchase through my business is any different to the Management Consultancies purcahse for their staff.

I would suggest you are 1 of the 5% who validly have to work from home, go to different sites etc. In 12 years of contracting I have met very few of contractors like yourself. Most of the ones I have worked with don't work from home, go into the same office everyday and quite often stay for years (I know one guy who has done 20 years at the same site). These are the ones who the IR are trying to catch on both divvies and expenses.

Parasol_Service
21st December 2006, 17:49
I have had a chat to Parasol about this already and they state they are unaffected by this. They state you will still be able to claim schedule E expenses as the payment is taxed at source.

I guess the jurys out for a while.

I'm going to wait til after christmas and speak to my tax advisor.

Thanks to SJD for lumping us in with some great comapines there ! NOT

Umbrellas" that fit the MSC definition will have problems with expenses (as per the draft legislation) - Expenses will be allowed on specific models but the days of P4 and the rest selling via expenses are limited. Parasol whilst being viewed as a PAYE Umbrella is about as far away as you can get from the MSC definition and NOT like ContractorUmbrella (as an example) at a detailed level.

Lesley - Parasol