HM Revenue & Customs (HMRC) has maintained a longstanding commitment to investigating limited company contractors (commonly referred to as Personal Service Companies, or PSCs) and accountancy services providers to ensure compliance with evolving tax laws and regulations.
At the beginning of this year, HMRC heightened its scrutiny of businesses that could potentially be in violation of the Managed Service Company (MSC) legislation. While HMRC’s focus has included certain companies, it’s important to emphasise the broader significance of this renewed attention.
This renewed emphasis has raised awareness once again of the MSC legislation amongst accountancy service providers. At Sapphire, our priority is to ensure that you, as directors operating through your own PSC, have a comprehensive understanding of the potential risks associated with improper guidance from your tax advisors.
Understanding the jargon
As always when it comes to tax legislation, there’s lots of jargon and acronyms being used. The legislation sets out some definitions as follows:
Managed Service Company (MSC) – A personal service company that is influenced or controlled by an ‘MSC Provider’.
MSC Provider (MSCP) – An entity which carries on a business of “promoting or facilitating the use of companies to provide the services of individuals”.
What does MSC legislation do? (ITEPA 2003, Ch.9) – Applies employment tax charges to payments generated by a company where the following applies:
- An MSCP is “involved in the company” – i.e. controlling or influencing a company’s payments, finances and/or the services of individuals.
- The MSCP benefits financially on an ongoing basis from the provision of the services of individuals.
Purpose of the Legislation
This legislation is designed to ensure that Directors of PSCs take responsibility for running their own limited companies, mitigating the issue from paying lower corporate taxes and dividend taxes over employment taxes, if the company is controlled by another party – like an accountant or tax advisor. If HMRC categorises a firm as an MSC provider, it deems all its clients as users of an MSC and levies PAYE and national insurance to any income earned by the contractor’s businesses.
MSC legislation works in a similar way to IR35. If HMRC decides that a contractor seems to be part of a Managed Service Company, all payments will be reclassified as employment income, which will then be subject to PAYE and NIC.
With HMRC’s focus being on the IR35 and MSC legislation, it is imperative that you have the right advisor to help you navigate this legislative minefield.
This is where Sapphire ensures all our clients receive the right advice on how directors should manage and operate within their limited company to ensure they are always on the right side of any complex legislation.
The solution we offer clients is one of an expert advisory capacity to help you operate your limited company in an effective and tax efficient manner.
As always our experts are available to answer any questions you may have, please contact us on 01625 569 314 or email at newbusiness@sapphireorg.co.uk
