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LisaContractorUmbrella
14th June 2011, 12:59
HMR&C have announced that they have expanded their definition of a Managed Service Company; their position is that intermediaries providing payment services to contractors should do so via PAYE and not any other means. They have declared "Where HMRC challenges successfully a company as being within the Managed Service Company legislation and that company is unable to pay the resultant PAYE and National Insurance debt, HMRC will invoke the transfer of debt provisions".

If the debt transfer provision is invoked it can be applied to any or all parties involved which means that any contractors using a scheme that HMR&C could consider to be an MSC are likely to be extremely unpopular with agencies and clients alike

geoff from contracta IOM
14th June 2011, 14:07
HMR&C have announced that they have expanded their definition of a Managed Service Company; their position is that intermediaries providing payment services to contractors should do so via PAYE and not any other means. They have declared "Where HMRC challenges successfully a company as being within the Managed Service Company legislation and that company is unable to pay the resultant PAYE and National Insurance debt, HMRC will invoke the transfer of debt provisions".

If the debt transfer provision is invoked it can be applied to any or all parties involved which means that any contractors using a scheme that HMR&C could consider to be an MSC are likely to be extremely unpopular with agencies and clients alike

Will the fact that many of the Service Providers are overseas increase the risk that HMRC will look to employment businesses, as the parties with greater assets, to transfer debts?

No. Employment businesses should bear in mind that HMRC will only consider transferring debts to an employment business both if debts are irrecoverable from Service Provider or workers, and there is evidence that the employment business was actively involved in the provision of the workers' services through an MSC.

LisaContractorUmbrella
14th June 2011, 14:32
Will the fact that many of the Service Providers are overseas increase the risk that HMRC will look to employment businesses, as the parties with greater assets, to transfer debts?

No. Employment businesses should bear in mind that HMRC will only consider transferring debts to an employment business both if debts are irrecoverable from Service Provider or workers, and there is evidence that the employment business was actively involved in the provision of the workers' services through an MSC.

From HMR&C website:

"It should be noted that simply because an intermediary is based outside the UK does not mean the Managed Service Company legislation does not apply. Those providing their services though companies based outside the UK should not assume that this fact alone exempts their company from the legislation and them from the consequences of non-compliance. If the provider and their associates are based outside of the UK tax jurisdiction, then the persons most at risk are individual workers based in the UK."

geoff from contracta IOM
14th June 2011, 14:49
From HMR&C website:

"It should be noted that simply because an intermediary is based outside the UK does not mean the Managed Service Company legislation does not apply. Those providing their services though companies based outside the UK should not assume that this fact alone exempts their company from the legislation and them from the consequences of non-compliance. If the provider and their associates are based outside of the UK tax jurisdiction, then the persons most at risk are individual workers based in the UK."

We could quote HMRC rhetoric at each other forever, what can't be obscured by HMRC is the applicable tax laws on which our learned colleagues base their opinions much as they love to try.

LisaContractorUmbrella
14th June 2011, 15:05
We could quote HMRC rhetoric at each other forever, what can't be obscured by HMRC is the applicable tax laws on which our learned colleagues base their opinions much as they love to try.

Oh I don't know it hasn't stopped them in the past :grin

HMR&C seem to be getting wise to the fact that woolly legislation causes loopholes; in this case I think they have clarified their position completely and, as we both know, if they disagree with your learned colleagues it will be the contractor who loses out

geoff from contracta IOM
14th June 2011, 15:18
Oh I don't know it hasn't stopped them in the past :grin

HMR&C seem to be getting wise to the fact that woolly legislation causes loopholes; in this case I think they have clarified their position completely and, as we both know, if they disagree with your learned colleagues it will be the contractor who loses out

If HMRC disagreed with the interpretation of the leglislation why not challenge it ? Why don't all the umbrella companies with a vested financial interest club together and obtain an opinion of their own to use as a marketing tool ( against the like of my company ) if it would in fact contradict the other numerous QC's opinions ? HMRC are not challenging it or they wouldn't have released yet another document to consult on putting yet another sticking plaster piece of leglislation into statute ( delivery expected possibly Mid 2012 ) . I understand the reservations some contractors might have about using these schemes but most of it is based on posters to this forum doing HMRC's job for them. If someone can point out to me where our barrister is wrong i'm sure both him and I would be delighted to know, along with tax managers at the big 4 practices, independent tax consultants and a former HMRC tax inspector.

Vallah
14th June 2011, 16:47
From HMR&C website:

"It should be noted that simply because an intermediary is based outside the UK does not mean the Managed Service Company legislation does not apply. Those providing their services though companies based outside the UK should not assume that this fact alone exempts their company from the legislation and them from the consequences of non-compliance. If the provider and their associates are based outside of the UK tax jurisdiction, then the persons most at risk are individual workers based in the UK."

That appears on the HMRC website in 2008. Hardly a new development.

LisaContractorUmbrella
15th June 2011, 07:03
If HMRC disagreed with the interpretation of the leglislation why not challenge it ? Why don't all the umbrella companies with a vested financial interest club together and obtain an opinion of their own to use as a marketing tool ( against the like of my company ) if it would in fact contradict the other numerous QC's opinions ? HMRC are not challenging it or they wouldn't have released yet another document to consult on putting yet another sticking plaster piece of leglislation into statute ( delivery expected possibly Mid 2012 ) . I understand the reservations some contractors might have about using these schemes but most of it is based on posters to this forum doing HMRC's job for them. If someone can point out to me where our barrister is wrong i'm sure both him and I would be delighted to know, along with tax managers at the big 4 practices, independent tax consultants and a former HMRC tax inspector.

I don't know what sort of scheme you offer Geoff but that's because none of the offshore providers on here are prepared to give details; I can understand that you may not want a competitor pinching your ideas but it comes across as you not wanting to give information because you know that HMR&C don't approve and therefore contractors are at risk; if that's not the case then say so.

If you say that we are doing HMR&C's job for them you have to concede that the advice we offer is in line with HMR&C opinion. Obviously there will be QC's and accountants who will examine the minutiae of legislation and probably find, and use, loopholes; the reason they can do that is, invariably, because the legislation is not well written in the first place but, and it is a big but, HMR&C's intention is usually pretty clear.

geoff from contracta IOM
15th June 2011, 09:24
I don't know what sort of scheme you offer Geoff but that's because none of the offshore providers on here are prepared to give details; I can understand that you may not want a competitor pinching your ideas but it comes across as you not wanting to give information because you know that HMR&C don't approve and therefore contractors are at risk; if that's not the case then say so.

If you say that we are doing HMR&C's job for them you have to concede that the advice we offer is in line with HMR&C opinion. Obviously there will be QC's and accountants who will examine the minutiae of legislation and probably find, and use, loopholes; the reason they can do that is, invariably, because the legislation is not well written in the first place but, and it is a big but, HMR&C's intention is usually pretty clear.

Lisa the broad details of my scheme are on are website obviously the intricate details are not but it is widely accepted in the tax specialist industry that schemes using this methodology are compliant assuming certain pitfalls are avoided. Of course HMRC don't approve, they need all the money they can get to pass over to the government to continue to waste, but disapproving and proving in a court of law are two very seperate issues. This is the underlying problem they try to work with crap legislation by making as much noise as possible in the hope it becomes accepted as law.

LisaContractorUmbrella
15th June 2011, 09:49
Lisa the broad details of my scheme are on are website obviously the intricate details are not but it is widely accepted in the tax specialist industry that schemes using this methodology are compliant assuming certain pitfalls are avoided. Of course HMRC don't approve, they need all the money they can get to pass over to the government to continue to waste, but disapproving and proving in a court of law are two very seperate issues. This is the underlying problem they try to work with crap legislation by making as much noise as possible in the hope it becomes accepted as law.

The trouble is though Geoff is that you can't claim that something is 'compliant' if HMR&C don't approve; we all know that avoidance schemes are not illegal and that many of the problems surrounding the industry now have been created by badly thought out legislation. Unfortunately, the fact of the matter is that, even though HMR&C may not win in a court of law, the costs involved in defending your position would be enormous and they would not be recoverable, HMR&C have already used the concept of retrospective legislation to fight what they don't agree with and again, even if you win your case, they will legislate to ensure you can't use it in future without breaking the law. This industry seems to be in a position now where 'compliant' = what HMR&C decide at the time and we all have to find a way to work with that or be prepared to fight our corner :ladybags:

geoff from contracta IOM
15th June 2011, 10:45
The trouble is though Geoff is that you can't claim that something is 'compliant' if HMR&C don't approve; we all know that avoidance schemes are not illegal and that many of the problems surrounding the industry now have been created by badly thought out legislation. Unfortunately, the fact of the matter is that, even though HMR&C may not win in a court of law, the costs involved in defending your position would be enormous and they would not be recoverable, HMR&C have already used the concept of retrospective legislation to fight what they don't agree with and again, even if you win your case, they will legislate to ensure you can't use it in future without breaking the law. This industry seems to be in a position now where 'compliant' = what HMR&C decide at the time and we all have to find a way to work with that or be prepared to fight our corner :ladybags:

Agreed on some points but I have mentioned before that we insure our clients against an investigation by HMRC and the policy covers their accountants AND legal fees. HMRC will without doubt legislate to close this structure but the reality is that we are not at that point, when we will be is anyones guess and as much as HMRC would love to ride roughshod over fundamental legal principles our entire leglislative system is in grave danger if the LJ's find in favour of them in the BN66case without isolating the ruling and that is where I believe the problem lies. How do you tear up such a cornerstone of our justice system by retrospectively applying legislation, I notice they didn't try that with the EBT is this an indication of how unsure they are of the ground they are on ? For all the guys affected by BN66 I sincerely hope so !

LisaContractorUmbrella
15th June 2011, 11:59
Agreed on some points but I have mentioned before that we insure our clients against an investigation by HMRC and the policy covers their accountants AND legal fees. HMRC will without doubt legislate to close this structure but the reality is that we are not at that point, when we will be is anyones guess and as much as HMRC would love to ride roughshod over fundamental legal principles our entire leglislative system is in grave danger if the LJ's find in favour of them in the BN66case without isolating the ruling and that is where I believe the problem lies. How do you tear up such a cornerstone of our justice system by retrospectively applying legislation, I notice they didn't try that with the EBT is this an indication of how unsure they are of the ground they are on ? For all the guys affected by BN66 I sincerely hope so !

Would the insurance policy cover any tax that becomes payable as a result of the investigation?

With regard to the BN66 case - couldn't agree more

geoff from contracta IOM
15th June 2011, 12:11
Would the insurance policy cover any tax that becomes payable as a result of the investigation?

No but any policy that did would only encourage " creative declarations " by the policy holder

LisaContractorUmbrella
15th June 2011, 12:39
No but any policy that did would only encourage " creative declarations " by the policy holder

I can understand that but the policy doesn't therefore cover the individual from potentially huge costs as I would assume that it would not cover any interest or fines either?

Steven@Parasol
16th June 2011, 10:26
Would the insurance policy cover any tax that becomes payable as a result of the investigation?

With regard to the BN66 case - couldn't agree more

Geoff - is the insurance policy unique to yourselves?

It's interesting that some companies claim to be 100 per cent confident in their schemes but offering insurance in case of investigation would contradict this? I'm not referring to your scheme specifically.

LisaContractorUmbrella
16th June 2011, 10:31
Geoff you also stated that you know that HMR&C will legislate and close the scheme at some point - does that not give them more impetus to their arguments in favour of restrospection

geoff from contracta IOM
16th June 2011, 12:47
Geoff - is the insurance policy unique to yourselves?

It's interesting that some companies claim to be 100 per cent confident in their schemes but offering insurance in case of investigation would contradict this? I'm not referring to your scheme specifically.

Steven I might be 100% confident my house won't burn down but ..............................

geoff from contracta IOM
16th June 2011, 12:56
Geoff you also stated that you know that HMR&C will legislate and close the scheme at some point - does that not give them more impetus to their arguments in favour of restrospection

Lisa they might make the drink driving limit zero and I hope they do but if i'm stopped and breathalized tonight after half a pint can they come back if the legislation changes and prosecute me in two years time ?

LisaContractorUmbrella
16th June 2011, 13:00
Steven I might be 100% confident my house won't burn down but ..............................

Yes but the difference is that you would get back the money to rebuild your house and replace the contents - using your analogy, you might have some furniture but you'd have no house to put it in

LisaContractorUmbrella
16th June 2011, 13:00
Lisa they might make the drink driving limit zero and I hope they do but if i'm stopped and breathalized tonight after half a pint can they come back if the legislation changes and prosecute me in two years time ?

Personally Geoff I wouldn't put it past them :frown

Taxless
17th June 2011, 10:22
Is this not all down to your attitude to risk?

No one likes to pay tax and the Courts have agreed in the past that there is nothing wrong with legally arranging your affairs so that you pay as little as possible.

HMRC are currently tasked with raising an additional £7Bn per year by 2015.

In this climate HMRC are obviously going to try and stop avoidance if they can, as more people are likely to be looking for ways to minimise what they have to pay.

Tax avoidance is legal and tax evasion is not, although I accept that HMRC and Government ministers either no longer understand the concept or are are trying to deliberately blur the picture (surely not!).

If someone comes up with a cunning plan to pay less tax and it is legal, whether through badly written legislation or otherwise, then it is down to me as an individual to do my own due diligence on the product and then decide whether to use it or not, based on my own attitude to risk.

Do I expect HMRC to like it, no of course not, particularly with their current targets, but that does not mean they can just ignore the legal position.

They can certainly challenge any avoidance where they think they might have a case and can make as much noise about avoidance that they don't like but can't stop, or they can legislate to change things in the future.

The concept of retrospective legislation doesn't sit too comfortably in a western democracy. I know what the law is today, but how am I supposed to organise my affairs, pay the right tax and complete my tax return correctly if someone is going to change the law that applies today, next week, month or year?

HMRC have a habit of delaying tactics or claiming they will close things down and that is just all part of their game plan of trying to stop more people taking similar action. I don't have a problem with that but just as with solution providers, I don't necessarily believe everything they say.

A case in point would be IR35 which HMRC told us would raise £000's of millions annually but earlier this year the Office for Tax Simplification revealed IR35 investigations had dropped significantly and they were now raising as little as £1million annually!

Gather as much information as you can and make an informed decision for yourself. If you claim not to have full detals of it then I would suggest that you certainly should not be considering it.

LisaContractorUmbrella
17th June 2011, 10:40
Well put Taxless and absolutely right; it all comes down to calculated risk but the important word here is 'calculated' - anyone who doesn't fully understand the scheme and still enters into it is just taking a (big) risk

geoff from contracta IOM
17th June 2011, 11:05
I am in absolute agreement with you Taxless, I advise every potential client to go and do their own research and certainly not take my word that our scheme works and TBH if any provider doesn't give that advice or is not happy to discuss it with a clients tax advisor in intricate detail people should run a mile

Tanya@SC Lee Accountant Ltd
19th June 2011, 20:01
However we came across some umbrtella companies or accountant do not have the right knowledge to educate their clients. This kind of misleading providers are someone need to be blamed



Well put Taxless and absolutely right; it all comes down to calculated risk but the important word here is 'calculated' - anyone who doesn't fully understand the scheme and still enters into it is just taking a (big) risk