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Umbrella or MSC - what's the difference?

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    Umbrella or MSC - what's the difference?

    Hi guys, am I being a little thick here??!!

    An Umbrella Company - employs contractors, the contractors are NOT shareholders and therefore receive no dividends.

    An MSC - employs contractors, the contractors are NOT shareholders and therefore receive no dividends.

    If the above is true, how the h3ll can Umbrella Companies continue to offset Expenses for contractors and MSCs (post the new legislation) cannot?
    Someone in work has suggested that its because an Umbrella Company will have more than one worker. If that was the case, surely an MSC could simply 'employ' another contractor, define themselves as an Umbrella Company and 'Bob's your Uncle' allow the contractors to offset expenses?!

    Please help me ....Cheers

    #2
    Originally posted by Rialto99
    An MSC - employs contractors, the contractors are NOT shareholders and therefore receive no dividends.
    An MSC - employs contractors, the contractors ARE shareholders and therefore receive dividends.

    Comment


      #3
      An MSC - employs contractors, the contractors ARE shareholders and therefore receive dividends.

      **********************************************

      Cheers for info Lewis. Surely in your example though an MSC could simply take back there share(s) from the contractor(s) which means the contractor(s) no longer receives dividends. Secondly, the whole point of the new MSC legislation (as I see it) is to ensure that contractors of MSCs DO NOT RECEIVE DIVIDENDS.

      So back to my original point, the only difference between an MSC and an Umbrella Company is the fact that the contractor(s) in an MSC hold shares. To move from an MSC to an 'Umbrella Company' would simply involve transferring the shares back from contractor to MSC and perhaps even 'employing' a few more contractors (instead of just one).

      Anyone out there think I going mad???!

      Cheers R

      Comment


        #4
        Originally posted by Rialto99
        An MSC - employs contractors, the contractors ARE shareholders and therefore receive dividends.

        **********************************************

        Cheers for info Lewis. Surely in your example though an MSC could simply take back there share(s) from the contractor(s) which means the contractor(s) no longer receives dividends. Secondly, the whole point of the new MSC legislation (as I see it) is to ensure that contractors of MSCs DO NOT RECEIVE DIVIDENDS.

        So back to my original point, the only difference between an MSC and an Umbrella Company is the fact that the contractor(s) in an MSC hold shares. To move from an MSC to an 'Umbrella Company' would simply involve transferring the shares back from contractor to MSC and perhaps even 'employing' a few more contractors (instead of just one).

        Anyone out there think I going mad???!

        Cheers R

        An MSC, before the new legislation came into force, allowed contractors to receive dividends through a limited company set-up over which they did not have complete control e.g. they would have not have had to set up a company bank account. Since the introduction of the new legislation any contractor receiving payment through a third party, whether or MSC or umbrella comany, can only receive payment through PAYE.

        HTH
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        Comment


          #5
          Thanks Lisa, but this still hasn't answered my question.
          I understand what an MSC did pre 6th April 2007 (pay small salary, dividends, and expenses etc) but what I REALLY WANT TO KNOW is "What's the difference NOW between an MSC and an Umbrella Company!!!!!!

          In my mind, what's stopping an MSC transfer its shares back from the contractor and therefore define itself as an 'Umbrella Company'?

          Correct me if I'm wrong but 'Umbrella Companies' CAN STILL ALLOW EXPENSES and MSCs CANNOT? Why would any company (current MSC) not do this and therefore allow their contractors to claim expenses?????

          Thanks again

          Comment


            #6
            Originally posted by Rialto99
            Thanks Lisa, but this still hasn't answered my question.
            I understand what an MSC did pre 6th April 2007 (pay small salary, dividends, and expenses etc) but what I REALLY WANT TO KNOW is "What's the difference NOW between an MSC and an Umbrella Company!!!!!!

            In my mind, what's stopping an MSC transfer its shares back from the contractor and therefore define itself as an 'Umbrella Company'?

            Correct me if I'm wrong but 'Umbrella Companies' CAN STILL ALLOW EXPENSES and MSCs CANNOT? Why would any company (current MSC) not do this and therefore allow their contractors to claim expenses?????

            Thanks again
            The MSC's did not own any shares in the individual company's they were processing...the contractors owned them. So the MSC has nothing to transfer anywhere. If an MSC wanted to re-invent itself as an umbrella (paye) it would just set up another new company with its brand name and start marketing that as their product. So in effect their are now only 2 providers of services: accountants offering across the board solutions to all kinds of clients and PAYE umbrellas. The old MSC providers are trying to be in one or the other and sometimes both!

            Comment


              #7
              Originally posted by Denny
              Brollies are de-facto employers, despite contractors being their clients, and they deduct the usual PAYE/NI from contractor pay (and employers NI too???). They also charge an admin fee for the privilege making the whole thing very costly. The only way that so called safe brollies can be cost effective to use is if they can manage to wheezle a few dodgy non receiptable dispensations into their payment strategies. There's nothing like claiming £20 per day for a daily bag of crisps or £100 a night slumming it overnight on a friend's sofa.

              Unfortunately Gordo has whipped out his 'noccies' and is training his beady eyes on these now that he's detonated the MSCs legitimacy to operate as they have done.

              MSCs, as currently defined, since 6th April, which is not at all defined clearly under this new legislation, are recognisable as taking on several clients under their own limited set up and controlling contractors' finances untypical of accountancies, such as controlling the bank account. They offer a no fuss, no worry service, hands off service, enabling clients to forget about running their business and just enjoy the benefits of having a salary plus divi payment vehicle - like a business. The IR firmly believe that only those who would otherwise be employed and taxed at source would use these schemes and some EBs and employers actually encouraged employees to terminate their employment contracts and instead operate through these payment vehicles, destroying their employment rights in the process. Unfortunately, some who claimed they were 'real businesses' when they signed up with these MSCs area also being duly clobbered with the additional tax as well.
              Certified or chartered accountants (which are outside the scope of MSC legislation) are not recognisable just by having the name 'accountancy' with their name. Many MSC type schemes are, apparently, also claiming to be accountants.

              If in doubt, avoid anyone offering or anything named with the word 'scheme' in it.

              Proper accountants, deemed at present to be outside the scope of the MSC legislation, advise owner managed companies on tax planning and will compile end of year accounts and perhaps set up a limited company or act as co. sec. However, they don't encourage clients to alter their true 'employment' status by constructing payment strategies and schemes that would make a client avoid tax which they otherwise couldn't take advantage of under the law, were they not a member of that scheme. They won't control a client's bank account either by having access to it's finances or distribute dividends on members' behalf. Accountants won't encourage you to operate outside ir35 either nor should they insist that you are ir35 exempt before taking you on as a client. To be a client of an accountant, the owner managed business is expected to exercise their own judgement in what to pay themselves after being offered advice on the pros and cons. They are never actually told what to do.
              You must have had experience of a really bad umbrella company Denny. Any
              company that will process the sort of dodgy expense claims that you mention
              is far from 'safe'. I know I am biased but an umbrella company is a good
              option for new contractors or those on short term contracts - we're not all
              bad you know
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              Comment


                #8
                An MSC, before the new legislation came into force, allowed contractors to receive dividends through a limited company set-up over which they did not have complete control e.g. they would have not have had to set up a company bank account. Since the introduction of the new legislation any contractor receiving payment through a third party, whether or MSC or umbrella comany, can only receive payment through PAYE.

                HTH


                *******************************************

                Lisa,

                Sorry to harp on about this, but I'm still not convinced.

                If a contractor (me) receives payments through EITHER an MSC or an Umbrella Company, why can I offset expenses if I work in an Umbrella Company and not an MSC? Basically, what's the difference between the two structures?

                Is it because:-

                An Umbrella Company (ContractorUmbrella) has 1. More than 1 contractor working through it and 2). Contractors do not own shares in ContractorUmbrella?

                If this is the case, why don't MSCs simply employ more than 1 contractor and make sure they (the MSC) hold 100% of the shareholding?. In this example, surely the MSC is now classed as an Umbrella Company meaning it's contractors can offset tax deductible expenses, just like ContractorUmbrella?

                Thanks R

                Comment


                  #9
                  Originally posted by Rialto99
                  An MSC, before the new legislation came into force, allowed contractors to receive dividends through a limited company set-up over which they did not have complete control e.g. they would have not have had to set up a company bank account. Since the introduction of the new legislation any contractor receiving payment through a third party, whether or MSC or umbrella comany, can only receive payment through PAYE.

                  HTH


                  *******************************************

                  Lisa,

                  Sorry to harp on about this, but I'm still not convinced.

                  If a contractor (me) receives payments through EITHER an MSC or an Umbrella Company, why can I offset expenses if I work in an Umbrella Company and not an MSC? Basically, what's the difference between the two structures?

                  Is it because:-

                  An Umbrella Company (ContractorUmbrella) has 1. More than 1 contractor working through it and 2). Contractors do not own shares in ContractorUmbrella?

                  If this is the case, why don't MSCs simply employ more than 1 contractor and make sure they (the MSC) hold 100% of the shareholding?. In this example, surely the MSC is now classed as an Umbrella Company meaning it's contractors can offset tax deductible expenses, just like ContractorUmbrella?

                  Thanks R
                  Hi Rialto

                  The answer is that the IR have specifically legislated against MSC's to say that you cannot claim any expenses if you are using an MSC. They have clarified that you can claim certain expenses when working through an umbrella; there is, of course, nothing to stop companies that were operating MSC's from setting up an umbrella company.

                  HTH
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                  Follow us on Twitter.

                  ContractorUK Best Forum Advisor 2015

                  Comment


                    #10
                    Thanks Lisa - so what's the difference between an MSC and an Umbrella Company?!!!?!

                    R

                    Comment

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