Tax Legislation

Tax Legislation

Keeping your business safe

Meet Your Obligations

The legislative landscape for contingent workforce supply chains is complex and ever-changing.

We are here to help you understand and mitigate the risks so your business can go from strenth-to-strength, safe in the knowledge you are meeting your compliance obligations.

Managed Services Company (MSC) Legislation

The MSC legislation (Chapter 9 ITEPA 2003) was introduced in April 2007 to counteract the growing number of composite companies which existed at the time.

What is it?

If the MSC rules are deemed to apply to your company, then the company’s income will be re-classified as standard employment income, subject to income tax and National Insurance Contributions.

If HMRC determines that an accountancy services provider is in fact a Managed Service Company Provider (MSCP), this means that HMRC believes that the accountancy services provider carries on a business of “promoting or facilitating” the use of companies to provide the services of individuals and that the accountancy services provider is also “involved with” that company.

As a result, HMRC could subsequently determine that potentially all limited company contractors of that MSCP are now Managed Service Companies (MSCs).

Who is excluded?

The legislation states that accountants are not an MSCP if they are merely providing accountancy services in a professional capacity.

Likewise, tax and legal advisers that provide advice to clients that happen to be service companies are not MSCPs if they are simply providing professional advice.

However, where an accountant/adviser strays too far outside of its professional remit of providing services and step into “promotion” or “facilitation” of companies for the provision of services of individuals they could become an MSCP.

The Transfer of Debt provision is very strong, if the liability cannot be recovered from the ‘MSCP’ then the liability automatically flows down the supply chain to the agency and then the end client.

Onshore Intermediaries Legislation

Applies where services were intended to be supplied by a self-employed worker.

From 6th April 2014, should a worker be deemed an employee, their agency will be responsible for deducting the PAYE and NIC, from all the income earned by the worker.

The main factors that determine status are:

  • The worker is not subject to  supervision, direction or control.
  • Where a worker is engaged by or through an employment business then there will be a presumption that there is SDC over the worker and it will be up to the employment intermediary to prove otherwise.
  • Liability for non-compliance will sit with the agency and where an intermediary has been used for payroll and compliance purposes. There may be instances where the end client is liable, in such instances where information that contributes to an out-of-scope status has been provided fraudulently.
Tax Legislation

Travel & Subsistence Legislation 2016

On 6th April 2016 the Government introduced new legislation which imposed restrictions on a worker’s ability to get tax relief at source on his/her travel and subsistence costs.

For T&S to be payable, the worker should not be under the supervision, direction or control (SDC) of either the client, the agency or an intermediary in the way he/she carries out work.

This legislation affects all agency and umbrella workers. Those working through personal services companies (PSCs) are not affected providing they fall outside of IR35. HMRC has stated that it will assume that all agency and umbrella workers are subject to SDC unless the agency or umbrella company has gathered evidence to the contrary.

So, if the agency or the umbrella company gather enough evidence to prove to HMRC that there is no SDC, it will still be possible for some umbrella workers to continue to claim mileage expenses to their main temporary site.

If a contractor is found to be claiming T&S expenses in an umbrella company model where they are under SDC it is the employment intermediary operating the T&S scheme that is primarily liable if there is SDC or the right thereof. This means that umbrella companies need to ensure that they are carrying out thorough SDC tests and gathering substantial information in order to satisfy HMRC that there is no SDC.

Liability may fall on the agency and/or the client where “fraudulent documents” have been provided saying there is no SDC. Although fraud will be very difficult for HMRC to prove it is not difficult to see them taking the point when all of an agency’s workers are stated to be outside SDC.

Criminal Finance Act 2017

HMRC expects end users and staffing companies to carry out due diligence on their staffing supply chains to try to prevent tax avoidance (and tax evasion) and has better tools than in the past to attack organisations whose supply chains are involved in what it sees as bad practices.

  • Because the legislation covers the businesses and individuals involved in the payment of temporary workers, it means all members of the supply chain are at risk.
  • Common pitfalls include the determination of self-employment, the use of complex engagement models and the processing of expenses for Umbrella employees.
  • Risk can be mitigated through the simplification of the supply chain for greater transparency alongside robust, auditable compliance practices that do not waver over time.
Tax Legislation

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