Press releaseMonday 13 August 2007

CONTRACTORS LIABLE FOR MSC DEBTS FROM AUGUST 6TH 2007

• All contractors face debt risk if MSC provider is challenged

Thousands of limited company contractors who receive accountancy services from third parties could be deemed to be managed service companies (MSCs) from August 6th 2007 and liable for unpaid PAYE and National Insurance, warns giant group plc, the contractor services provider.

For contractors earning £50,000 a year that would roughly equate to an additional annual tax bill of £10,000.

The MSC legislation means that unlike IR35, where each contractor has to be challenged by HMRC individually, if a provider of services to limited companies is deemed to be 'involved' with just one of its contractors, all its other contractors will automatically be classed as MSCs.

According to KPMG, the professional services firm, once HMRC deem an organisation to be an MSC Provider caught by the legislation then the burden of proof is on the MSC Provider to prove otherwise.

Matthew Brown, Managing Director, giant group, comments: "The difference between this legislation and IR35 is that contractors can't rely on safety in numbers. If IR35 was a precision tool, then the MSC legislation is a blunderbuss. All HMRC needs to do is aim at a single service provider and thousands of contractors will get hit."

"Service providers relying on an excessively optimistic reading of the HMRC Guidance Note to convince themselves that they are on the right side of the law are playing a dangerous game."

KPMG says that umbrella companies are the only completely safe option for contractors, recruiters and end users – yet there is still a perception that the legislation applies to Umbrellas.

John Chaplin, tax director at KPMG, says: "The debt transfer risk does not apply to contractors operating through umbrella companies, who have been deliberately excluded from the scope of this legislation. Agencies will be able to include umbrella company only service providers on a preferred supplier list at no risk to themselves."

back next