Revenue targets 'MSC providers'

Organisations that HMRC suspects of being MSC providers are being asked to declare all details of their business models and the total number of clients within.

Although details to identify single clients are not yet being sought, the Revenue request is the "starting route to the first test case" under the new laws, a tax expert told CUK yesterday.

Kate Cottrell, co-founder of Bauer & Cottrell, a contractor advisory, said letters from HMRC have gone out to "known service providers whom HMRC believes to be MSC providers."

"The main message for contractors is that it is quite clear that HMRC continues to monitor very closely the internet," Ms Cottrell told Contractor UK last night.

The letters, which state disclosing the data is voluntary, also show HMRC knows at least the basics of the business models and solutions offered by service providers, Ms Cottrell added.

They add that some offshore service providers claim to be outside the MSC legislation, but that they, and the worker within, may be liable if employment taxes become "irrecoverable."

Under the debt transfer provisions, recruitment agencies also face a potential liability which can be mitigated if, as HMRC advises in its note, they take "reasonable steps."

But reassuringly for limited company contractors, the Revenue states: "It is important to remember that the legislation was introduced to address the issue of workers seeking to avoid employed levels of tax and NICs.

"It was not introduced to stop those genuinely in business on their own account providing their services though service companies."

In the letter, the tax authority says it is aware service providers on the internet are continuing to market their solutions on the basis of saving employer's NIC.

Bringing these outfits further inside the legislation, is the fact that their marketing is directed to "workers historically providing their services under contracts of service," HMRC said.

Replies from service providers are expected to reach the Revenue by the end of September, and the tax department said it anticipates they will honour its request with a "good response."

Bauer & Cottrell said: "Clearly this is an information gathering exercise and one that does not concern individual contractors.

"[But] no doubt the letters herald the start of the route to the first test case under this new legislation."

In a message to workers who wish to legally forego employment taxes, the firm recommended: "Contractors still need to satisfy themselves that they are in control of their own affairs, genuinely in business on their own account and most importantly not knowingly or indeed unknowingly providing their services through an MSC."

And in a message to affected service providers, Roger Sinclair, legal consultant at Egos Ltd, advised: "Anyone receiving one of these letters would be wise to seek advice from someone who has studied the legislation, before they even consider replying to it!

"Recruitment agencies may bear in mind that HMRC own guidance makes clear that if a worker is already working through a limited company when they first approach the recruitment agency, then they need have no fears under this legislation."

Sep 3, 2007

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